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German Bunds Gain on Bailout Concern as Italy, Spain Sell Debt

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Source: Bloomberg


German bunds rose amid concern measures to increase the euro-region’s financial firewall will fail to stem the euro-area crisis, spurring demand for the region’s safest assets.

Italian government debt fell as it sold EUR3.82 billion (US$5.11 billion) of bonds Tuesday. Ten-year bunds gained for the fifth time in six days after a German industry report predicted consumer confidence will decline in April. Finance ministers from the 17 euro nations will meet in Copenhagen on March 30 to discuss bailout provisions. German Chancellor Angela Merkel gave her first indication Monday that Germany could let temporary and permanent rescue funds run in parallel.

“It’s far from certain that we will have an increase in the rescue funds’ capacity and also the devil will be very much in the detail, whether Germany would go ahead with raising the capacity of the permanent funds or not,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht. “That will keep markets on guard. This confidence figure that we saw this morning was really a small dip, but overall, consumers remain fairly downbeat.”

The German 10-year yield fell two basis points, or 0.02 percentage point, to 1.93 per cent at 10:41 am London time. The 2-per cent bond due January 2022 rose 0.21, or 2.10 euros per 1,000-euro face amount, to 100.61.

European Central Bank President Mario Draghi said Monday euro-area governments should continue to take “decisive measures” after the central bank’s extraordinary three-year loans helped boost investor confidence.

Most euro-area government debt, led by Italy, underperformed German securities.

The Mediterranean nation’s 10-year yield rose six basis points to 5.09 per cent, increasing the extra yield investors demand to hold the securities over bunds to 316 basis points. Its two-year note yield climbed 11 basis points to 2.58 per cent, while Spanish 10-year rates were three basis points higher at 5.36 per cent.

The Italian government sold EUR2.82 billion of two-year zero-coupon bonds at a rate of 2.352 per cent. It also auctioned EUR1 billion of 2019 and 2021 inflation-linked bonds. Total sales were short of the maximum target of EUR4 billion.

Spain sold EUR2.58 billion of three- and six-month bills compared with its maximum target of EUR3 billion.