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French Bonds Gain As Investors Seek Crisis Havens

Published: May 26, 2012 | 8:02 am
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France’s bonds rose in the week, with 10-year yields falling the most in five months, as investors sought higher-yielding alternatives to German securities as havens from Europe’s debt crisis.
Yields on the French benchmark debt slid to a record yesterday as a report showed consumer confidence improved and after Le Parisien reported the government may raise tax-free state savings-account limits, potentially boosting demand from banks holding the deposits. German 30-year bonds pared a fourth week of gains as Italian Prime Minister Mario Monti said Europe’s largest economy can be persuaded to support joint euro bonds. Spanish 10-year yields stayed above 6 percent.
“It may just be a product of a hunt for yield as the yield compression has continued almost unabated across the bund curve to the point where even 30-year bonds dipped below 2 percent,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “That perhaps informed the positive performance that we’ve seen in semi-core paper.”
The French 10-year yield fell 34 basis points, or 0.34 percentage point this week, to 2.52 percent at 4:28 p.m. London time yesterday, after reaching 2.422 percent, the least since Bloomberg began collecting the data in 1990. The 3 percent bond due April 2022 rose 2.93, or 29.30 euros per 1,000-euro ($1,257) face amount, to 104.19.
Austria’s five-year note yield was at 1.25 percent, after falling to a record 1.216 percent.

Spread to Bunds

The extra yield, or spread, that investors get for buying 10-year French bonds over similar-maturity German bunds narrowed 28 basis points in the week 114 basis points. It widened to a euro-era record 204 basis points in November.
Investors looking for safety within Europe amid speculation that Greece may withdraw from the monetary union are looking beyond Germany, which sold two-year notes on May 23 at an all- time low average yield of 0.07 percent. The securities carried a zero-percent coupon. The country also sold index-linked bonds due April 2023 with a real yield of minus 0.24 percent.
“Dramatic rallies in core-to-semi-core markets have dominated price action in the past couple of days,” Padhraic Garvey, head of developed-market debt at ING Groep NV in Amsterdam, wrote in a note to clients yesterday. “The likes of France, Austria and Belgium are perceived to be offering the characteristics of relative safety, but with a spread that more than compensates for the extra risk.”

Bund Yields

Benchmark 10-year German bund yields declined six basis points to 1.37 percent.
An index of executive and consumer sentiment in the 17- nation euro area fell to 91.9 from 92.8 in April, the European Commission in Brussels will say on May 30, according to the median prediction of 28 economists in a Bloomberg News survey before the report on May 30.
Spanish 10-year bond yields rose five basis points this week to 6.32 percent. The rate on similar-maturity Italian debt fell 15 basis points to 5.66 percent.
German debt has returned 3.4 percent this year through May 24, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French securities have gained 5.3 percent, while France’s bonds due in 10 years or longer advanced 9.1 percent.


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