Global bonds rally as weak China data spur demand for safety

German 10-year bund yields dropped from a one-month high

16:22 October 13, 2016

London: Global government bonds advanced as weak Chinese economic data prompted investors to seek the relative safety of fixed-income assets.

German 10-year bund yields dropped from a one-month high, while those on similar-maturity Treasury notes retreated from the highest level since June. Chinese exports tumbled 10 per cent in September from 12 months earlier, the biggest decline in seven months, the government reported. This helped weaken the yuan, which touched a six-year low against the dollar.

“German government bonds are reacting to Chinese data that we had overnight,” said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc. “Both import and exports are dropping, which suggests that there’s a drop in activity.”

Benchmark German 10-year bund yields fell three basis points, or 0.03 percentage point, to 0.041 per cent as of 12:12pm. London time, having touched 0.074 per cent Wednesday, the highest since September 14. The zero per cent security due in August 2026 rose 0.251, or 2.51 euros per 1,000-euro ($1,103) face amount, to 99.596.

The yield on Treasury 10-year notes dropped three basis points to 1.74 per cent, while that on similar-maturity Italian bonds declined three basis points to 1.39 per cent.

Easy Policy

A slowdown in China, the world’s second largest economy, would reinforce the need for central banks to maintain their accommodative monetary policy stance, which helps support bonds. While the Federal Reserve is considering raising US interest rates, it has said it’s monitoring risks from developments abroad as part of its decision-making process.

Bonds in peripheral nations such as Spain and Italy are also being driven by speculation that the European Central Bank will tweak its quantitative-easing program. ECB policymakers are scheduled to meet next week.

The US Treasury is scheduled to sell $12 billion of 30-year debt Thursday. The bonds due in August 2046 yielded 2.475 per cent in pre-auction trading, in line with the yield achieved at a previous sale of the same securities on September 13.