Germany’s bonds rose as U.S. payrolls increased at the slowest pace since January 2011 and after the European Central Bank said it planned to keep interest rates low for a prolonged period to support the recovery.
Benchmark 10-year bunds headed for a second weekly gain as Standard & Poor’s affirmed Germany’s AAA credit rating. French securities rose after a report showed industrial production increased more in November than economists forecast, while Italian bonds advanced. ECB President Mario Draghi yesterday strengthened his pledge to keep borrowing costs low for an extended period.
“I doubt this one report will change the perception about the economic recovery in the U.S., but I can understand why the bond market reacted in this way,” said Peter Osler, head of rates strategy at broker Marex Spectron Group Ltd. in London. “The ECB has made it clear interest rates in the euro zone will stay low for a long time. We see no risk of them rising any time soon.”
Germany’s 10-year yield dropped six basis points, or 0.06 percentage point, to 1.86 percent as of 2:43 p.m. London time, having declined eight basis points this week, the most since the period ended Sept. 27. The 2 percent bund due in August 2023 rose 0.515, or 5.15 euros per 1,000-euro ($1,364) face amount, to 101.25.
The 74,000 gain in U.S. payrolls, less than the most pessimistic projection in a Bloomberg survey of economists, followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The median forecast called for an increase of 197,000. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.
S&P kept its outlook for Germany at stable, citing the nation’s “highly diversified and competitive economy” as well as the government’s track record for “prudent fiscal policies.” The company expects an orderly resolution of the “simmering debt crisis” in parts of the euro region, it said today in a statement.
Italian bonds gained, pushing 10-year yields down two basis points to 3.91 percent, while the rate on similar-maturity French debt dropped six basis points to 2.52 percent.
German bonds lost 1 percent in the 12 months through yesterday, the worst performer of 15 euro-area sovereign-debt markets tracked by Bloomberg World Bond Indexes. Spanish and Portuguese securities both returned 12 percent.