European Notes Fall on Concern Governments Increasing Supply
http://www.bloomberg.com/apps/news?pid=20601009&sid=a50QMgA_4my0&refer=bond#
By Kim-Mai Cutler
Jan. 12 (Bloomberg) -- European bonds fell as governments prepared to step up debt sales and the International Monetary Fund said nations aren’t doing enough to revive their economies.
Two-year yields rebounded from near the lowest in more than 18 years after IMF Managing Director
Dominique Strauss-Kahn said European governments are “behind the curve” in implementing stimulus packages and are “still underestimating their needs.” Germany plans to sell two-year notes on Jan. 14, part of a record $1.1 trillion offering in the euro region this year, according to Royal Bank of Scotland Group Plc.
“Supply is a major concern now,” said
Matteo Regesta, a London-based interest-rate strategist at BNP Paribas SA. “Market players are concerned with the idea that supply could be too much.”
The yield on the two-year note rose three basis points to 1.54 percent as of 2:30 p.m. in London. The price of the 2.25 percent security due December 2010 slipped 0.06, or 60 euro cents per 1,000-euro ($1,340) face amount, to 101.32. The yield on the 10-year German bund, Europe’s benchmark government security, rose two basis points to 3.03 percent. Bond yields move inversely to prices.
The yield on the German two-year note dropped to as low as 1.49 percent on Jan. 9, the lowest level since at least September 1990.
European governments will sell as much as a record 41 billion euros of Treasury bills this week, according to ING Groep NV.
Narrowing Spreads
Italy sold 13 billion euros of securities maturing within a year today while Germany sold 6.1 billion euros of bonds. The Netherlands issued 6.9 billion euros of debt also today.
France will offer 8 billion euros later today while Greece will sell 2 billion euros tomorrow. Spain may offer 1.5 billion euros of bills Jan. 14.
Investors should buy Italian bonds against German 10-year bunds on bets that the gap in yields between the two securities will narrow, according to Dresdner Kleinwort. Italian 10-year notes yield 136 basis points more than bunds, near the widest spread since June 1997.
There will be “tightening pressure on intra-Eurozone spreads,”
Marcel Bross, a Frankfurt-based Dresdner Kleinwort analyst, wrote in a note sent to clients today.
ECB Cuts
Accelerating job cuts and declining investment could shrink the economy of the 16 nations that share the euro by 2.5 percent this year, according to Bank of America and Deutsche Bank AG.
European Central Bank policy makers may follow the Federal Reserve and Bank of England in bringing borrowing costs closer to zero when they meet Jan. 15. The odds of a 50 basis-point cut are 100 percent, according to a Credit Suisse Group AG gauge of probability based on overnight index swap rates. Falling interest rates may lead to a rebound in European bond prices.
German two-year notes yield the least relative to U.S. two- year Treasuries in more than a year. The spread, or difference in yield between the two securities, is 80 basis points, or the lowest since Dec. 26, 2007.
German bonds have lost investors 0.3 percent this year, compared with losses of 0.8 percent for gilts and 0.9 percent for U.S. Treasuries, according to Merrill Lynch & Co.’s German Federal Governments, U.K. Gilts and U.S. Treasury Master indexes.
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