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German bond yields at new highs after stronger-than-expected PMIs

by jcp
Editorial & Advertiser disclosure

By Yoruk Bahceli

(Reuters) – German bond yields rose on Tuesday to new multi-week highs after data showed euro zone business activity slowed less than expected in August

Yields had already risen after S&P Global’s flash composite Purchasing Managers’ Index reading for Germany, tracking both manufacturing and services activity, while falling further in August, was slightly higher than analyst expectations.

Though remaining in contraction territory, the manufacturing index also rose, instead of the fall analysts had expected.

Euro zone data that followed similarly showed a contraction in activity, though the reading was also slightly higher than analysts expected.

Germany’s 10-year Bund yield rose as much as 7 basis points (bps) to its highest since July 21 at 1.38%, before easing slightly. The two-year bond yield touched a new peak of 0.941%, its highest since end-June, before falling back in late trading.

“I don’t think the PMI numbers in any way are a game changer, they are slightly still sub-50, so pointing to stagnant growth at best,” said Richard McGuire, head of rates strategy at Rabobank.

A reading below 50 indicates that activity is contracting.

“There’s not much news today, it’s just a continuation of the bearish tone. The PMIs simply do nothing to stand in the way of the recent bearish momentum,” McGuire added.

After sharp falls earlier in the summer on recession fears, bond yields rose sharply last week, driven by a strong increase in inflation in Britain, gas supply fears in the euro zone and hawkish commentary from European Central Bank policymakers.

A key market gauge of long-term euro zone inflation expectations tracked by the ECB rose to 2.2399%, the highest since early June, continuing a sharp rise since the start of last week, when it was at 2.06%.

In Italy, 10-year yields rose to as high as 3.72%, the firmest since July 21. The closely watched spread to German peers was earlier at 233 bps, the highest since July 29.

In other markets, German stocks rose to outperform the pan-European STOXX 600 index, while the euro pared its losses after the data, having hit a fresh 20-year low earlier, at $0.99005.

In debt issuance, Finland was raising 3 billion euros by syndication, according to a lead manager memo seen by Reuters.

It is the first euro zone syndicated government bond sale, in which issuers hire investment banks to sell the debt directly to end-investors, since May.

 

(Reporting by Yoruk Bahceli; Additional reporting by Lucy Raitano, Tommy Reggiori Wilkes and Dhara Ranasinghe; Editing by Jan Harvey and Bernadette Baum)

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