European Govts Bonds may gain with 10-Year Bund yields near record low
European bonds may gain- with the yield on the 10-year German bunds near a record low, on speculation that growth is slowing among the 12 nations sharing the euro. Which boosts speculation that the European Central Bank will not raise its key interest rate.
The European Commission last week cut its forecast for second quarter growth in the euro-region. A government report due May 20 may show the French economy in the first quarter expanded 0.5 percent from the previous quarter, compared with a 0.9 percent rate in the three months earlier, according to the median estimate of 26 economists surveyed by Bloomberg News.
The 3 3/4 percent German bund due January 2015 dropped 0.08, or 80 euro cents per 1,000 euro ($1,262) face amount, to 103.46 by 10:48 a.m. in London, according to Credit Suisse First Boston. The yield gained 1 basis point, or 0.01 percentage point, to 3.32 percent. Last week the yield dropped 15 basis points. It reached a record low of 3.29 percent on May 13.
The Frankfurt-based ECB has kept the region’s benchmark interest rate at 2 percent for almost two years. Bundesbank President Axel Weber said on May 11 that growth will weaken in the second and third quarters.
The difference in yield between German 10-year bunds and their U.S. equivalents has widened to 81 basis points from 54 basis points at the start of the year, Bloomberg data show, as the Federal Reserve raised its main rate to counter the threat of inflation and the ECB kept its benchmark rate unchanged as the economy struggled to grow.
The yield on France’s benchmark 3 1/2 percent bond due April 2015 gained 2 basis points to 3.36 percent and the yield on the Italian 10-year bond gained 2 basis points to 3.48 percent.
The 10-year euro swap spread, the difference between swap rates and bond yields, was at 14.00 basis points, compared with 14.80 percent at the beginning of last week, Bloomberg data shows.
The swap rate is what investors pay to exchange their fixed- rate interest payments for floating ones. The gap between that and a benchmark bond yield is the swap spread.
As expectations of lower interest rates rise, there is typically more demand to enter swaps that let holders pay a floating rate and receive a fixed one, which narrow swap spreads.
The European Commission last week cut its forecast for second quarter growth in the euro-region. A government report due May 20 may show the French economy in the first quarter expanded 0.5 percent from the previous quarter, compared with a 0.9 percent rate in the three months earlier, according to the median estimate of 26 economists surveyed by Bloomberg News.
The 3 3/4 percent German bund due January 2015 dropped 0.08, or 80 euro cents per 1,000 euro ($1,262) face amount, to 103.46 by 10:48 a.m. in London, according to Credit Suisse First Boston. The yield gained 1 basis point, or 0.01 percentage point, to 3.32 percent. Last week the yield dropped 15 basis points. It reached a record low of 3.29 percent on May 13.
The Frankfurt-based ECB has kept the region’s benchmark interest rate at 2 percent for almost two years. Bundesbank President Axel Weber said on May 11 that growth will weaken in the second and third quarters.
The difference in yield between German 10-year bunds and their U.S. equivalents has widened to 81 basis points from 54 basis points at the start of the year, Bloomberg data show, as the Federal Reserve raised its main rate to counter the threat of inflation and the ECB kept its benchmark rate unchanged as the economy struggled to grow.
The yield on France’s benchmark 3 1/2 percent bond due April 2015 gained 2 basis points to 3.36 percent and the yield on the Italian 10-year bond gained 2 basis points to 3.48 percent.
The 10-year euro swap spread, the difference between swap rates and bond yields, was at 14.00 basis points, compared with 14.80 percent at the beginning of last week, Bloomberg data shows.
The swap rate is what investors pay to exchange their fixed- rate interest payments for floating ones. The gap between that and a benchmark bond yield is the swap spread.
As expectations of lower interest rates rise, there is typically more demand to enter swaps that let holders pay a floating rate and receive a fixed one, which narrow swap spreads.
May 16, 2005
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