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European Bonds Decline on Signs Pace of Growth Is Accelerating
Dec. 6 (Bloomberg) -- European government bonds fell for a second day on evidence the pace of expansion in the $10 trillion economy is accelerating.
Benchmark debt extended yesterday's drop after a Bloomberg purchasing managers index showed retail-sales growth quickened in the region for a third month in November, giving the European Central Bank more scope to lift interest rates in 2007. A separate government report showed German factory orders climbed 10 percent from a year earlier in October.
``The euro-region economy is still growing robustly, and there's a lot of strength and demand in the industrial sector,'' said Elwin de Groot, a market strategist at Rabobank Groep in Utrecht, the Netherlands. ``Yields on shorter dated bunds are going to rise from here.''
The yield on the benchmark two-year note, which is more sensitive to changes in rate expectations than longer-dated debt, rose 3 basis point to 3.66 percent by 4:50 p.m. in London. The price of the 3.5 percent security due September 2008 fell 0.05, or 50 euro cents per 1,000 euro ($1,333) face amount, to 99.72. Bond prices move inversely to yields.
``The orders data point to good prospects for dynamic industrial output in the fourth quarter,'' wrote Jodie Saul, a European economist at CIBC World Markets in London.
An index of retail sales in the euro region rose to an adjusted 53.7, the highest in four months, from 52.8 in October, a survey of more than 1,000 retail executives compiled for Bloomberg LP by NTC Economics Ltd. showed today. A level above 50 indicates growth.
Royal Bank of Scotland Group Plc said yesterday its services index rose to 57.6, a four-month high, from 56.5 in October. A reading above 50 indicates growth.
ECB Rates
Benchmark debt was also hurt after separate reports showed sales at euro-region retailers quickened more than expected in October. Euro region retail sales rose 0.3 percent from a revised drop of 1 percent in September, Eurostat, the European Union's statistics office, said. Economists forecast a rise of 0.2 percent, a survey showed.
Bunds may extend declines on expectations Frankfurt-based ECB President Jean-Claude Trichet will raise rates tomorrow for the sixth time in a year and prepare for another increase in the first quarter, a survey of economists shows.
The ECB will lift its benchmark rate by a quarter-point to 3.5 percent tomorrow, according to all the 41 economists surveyed by Bloomberg. The bank, which also publishes new growth and inflation forecasts, may increase the rate to 3.75 percent in March, the survey showed.
``What the ECB says tomorrow is more important than what it does. The 25 basis-point increase is a done deal, but their statements may be interesting,'' said Peter Schaffrik, a fixed- income strategist at Dresdner Kleinwort in Frankfurt.
Traders are betting on at least one more interest-rate increase from the ECB next year, futures prices show. The yield on the three month Euribor futures contract for March rose 1 basis point to 3.79 percent today.
The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999.
Dec. 6 (Bloomberg) -- European government bonds fell for a second day on evidence the pace of expansion in the $10 trillion economy is accelerating.
Benchmark debt extended yesterday's drop after a Bloomberg purchasing managers index showed retail-sales growth quickened in the region for a third month in November, giving the European Central Bank more scope to lift interest rates in 2007. A separate government report showed German factory orders climbed 10 percent from a year earlier in October.
``The euro-region economy is still growing robustly, and there's a lot of strength and demand in the industrial sector,'' said Elwin de Groot, a market strategist at Rabobank Groep in Utrecht, the Netherlands. ``Yields on shorter dated bunds are going to rise from here.''
The yield on the benchmark two-year note, which is more sensitive to changes in rate expectations than longer-dated debt, rose 3 basis point to 3.66 percent by 4:50 p.m. in London. The price of the 3.5 percent security due September 2008 fell 0.05, or 50 euro cents per 1,000 euro ($1,333) face amount, to 99.72. Bond prices move inversely to yields.
``The orders data point to good prospects for dynamic industrial output in the fourth quarter,'' wrote Jodie Saul, a European economist at CIBC World Markets in London.
An index of retail sales in the euro region rose to an adjusted 53.7, the highest in four months, from 52.8 in October, a survey of more than 1,000 retail executives compiled for Bloomberg LP by NTC Economics Ltd. showed today. A level above 50 indicates growth.
Royal Bank of Scotland Group Plc said yesterday its services index rose to 57.6, a four-month high, from 56.5 in October. A reading above 50 indicates growth.
ECB Rates
Benchmark debt was also hurt after separate reports showed sales at euro-region retailers quickened more than expected in October. Euro region retail sales rose 0.3 percent from a revised drop of 1 percent in September, Eurostat, the European Union's statistics office, said. Economists forecast a rise of 0.2 percent, a survey showed.
Bunds may extend declines on expectations Frankfurt-based ECB President Jean-Claude Trichet will raise rates tomorrow for the sixth time in a year and prepare for another increase in the first quarter, a survey of economists shows.
The ECB will lift its benchmark rate by a quarter-point to 3.5 percent tomorrow, according to all the 41 economists surveyed by Bloomberg. The bank, which also publishes new growth and inflation forecasts, may increase the rate to 3.75 percent in March, the survey showed.
``What the ECB says tomorrow is more important than what it does. The 25 basis-point increase is a done deal, but their statements may be interesting,'' said Peter Schaffrik, a fixed- income strategist at Dresdner Kleinwort in Frankfurt.
Traders are betting on at least one more interest-rate increase from the ECB next year, futures prices show. The yield on the three month Euribor futures contract for March rose 1 basis point to 3.79 percent today.
The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999.
