Monday 26 September 2016

Eurozone Government bonds open 2016 with a strong first week with inflation lower than forecast and oil down

Eshe Nelson

Published 10/01/2016 | 02:30

Bonds of lower-rated countries such as Spain and Italy outperformed Germany's as European stocks rallied. German yields held above a one-month low reached earlier in the week after €12bn in supply entered the market on Thursday. Photo: Reuters
Bonds of lower-rated countries such as Spain and Italy outperformed Germany's as European stocks rallied. German yields held above a one-month low reached earlier in the week after €12bn in supply entered the market on Thursday. Photo: Reuters

Euro-area government bonds started the year on a strong footing. German 10-year bunds, the region's benchmark, gained the most in a month this week as lower-than-forecast inflation, falling oil prices, turmoil in Chinese markets and rising tensions in the Middle East boosted fixed-income assets - seen as a safer haven than shares.

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Securities pared a Friday advance after data showed US payrolls growth surged in December, damping demand for the relative safety of debt.

Bonds of lower-rated countries such as Spain and Italy outperformed Germany's as European stocks rallied. German yields held above a one-month low reached earlier in the week after €12bn in supply entered the market on Thursday.

"Markets have been mainly driven by two factors last week - the risk-off mode and oil prices," said Patrick Jacq, a senior fixed-income strategist at BNP Paribas in Paris. The bank is bullish on the region's bonds for the whole year as net supply, adjusted for the European Central Bank's purchases, is strongly negative.

"It's a good start for European government bonds, at least for cores," he said, referring to bonds of nations like Germany and France.

Germany's 10-year bund yield reached 0.48pc, the lowest since December 3. The price of the 1pc security due in August 2025 was at 104.36pc of face value. Italy's 10-year yield dropped two basis points to 1.53pc, six basis points lower on the week.

The 292,000 gain in US payrolls exceeded the highest forecast in a Bloomberg survey and followed a 252,000 increase in November that was stronger than estimated, a US Labour Department report showed. Any decline in bonds from the data would only be temporary, BNP Paribas's Jacq said.

Bloomberg

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