German 10-year bonds decline on US job statistics

German 10-year bonds declined in trading yesterday, pushing yields up the most in almost two weeks, as a US payroll report showing employers added more jobs than economists forecast damped demand for safer assets.

Finnish and Dutch securities also fell as the report stoked speculation an improving US labour market will allow the Federal Reserve to reduce asset purchases. Portugal’s bonds rose after Prime Minister Pedro Passos Coelho said that his government will still have the support of a coalition partner even after the leader of the party resigned as a minister this week.

ECB president Mario Draghi pledged yesterday to keep interest rates low for an extended period.

“It’s a pretty strong report and the bond market is going down,” said Peter Schaffrik, head of European interest-rates strategy at Royal Bank of Canada in London. “The European markets are holding up. The biggest move is in the Treasury-bond spread which is what you would expect in an environment where Draghi is nailing down the front end.”

Germany’s 10-year yield climbed seven basis points, or 0.07 percentage point, to 1.72%, the biggest increase since Jun 24. The 1.5% bond maturing in May 2023 dropped 0.63, or €6.30 per €1,000 face amount to 98.03.

Fed chairman Ben Bernanke said on Jun 19 that policy makers may “moderate” asset purchases this year and may end them mid-2014 if economic growth meets their forecasts. Draghi pledged on thursday to keep interest rates at a record low for an “extended period”.

Treasury 10-year yields climbed 17 basis points to 2.68%, increasing the extra yield over similar-maturity bunds by 11 basis points to 96 basis points, the most since Oct 2006 based on closing prices.

US payrolls rose by 195,000 workers for a second month in June, the labour department said in Washington. The median forecast in a Bloomberg survey projected a 165,000 gain after a previously reported 175,000 increase in May. The jobless rate stayed at 7.6%.

The yield on Finland’s bond maturing in Apr 2023 climbed four basis points to 1.98%, and the rate on Dutch 10-year securities increased five basis points to 2.10%.

Volatility on Greek bonds was the highest among euro-area markets yesterday, followed by those of Germany and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.