German Two-Year Note Yield Near One-Week High as Economic Confidence Rises

German two-year note yields stayed near the highest in more than a week as signs of quickening economic expansion and rising stocks sapped demand for the safest assets.

The 10-year German breakeven rate, a measure of inflation expectations, rose to a nine-month high after European economic confidence jumped to the strongest level since October 2007. German factory orders surged five times more than economists forecast in November. French bonds fell after a sale of almost 9 billion euros ($12 billion) of debt and Belgian bonds declined as the nation’s political turmoil deepened.

“Positive data is feeding through to bunds today, and risky assets are rallying,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London.

The yield on the two-year note was little changed at 0.90 percent as of 12:21 p.m. in London, after reaching 0.93 percent, the highest since Dec. 28. The price of the 1 percent security due in December 2012 was 100.19. The 10-year yield was also little changed, at 2.95 percent.
The Stoxx Europe 600 Index of shares increased 0.9 percent.

German factory orders, adjusted for seasonal swings and inflation, surged 5.2 percent from October, when they gained 1.6 percent, the Economy Ministry in Berlin said today. That’s the biggest gain since January last year. Economists expected a 1 percent increase, according to the median of 24 estimates in a Bloomberg News survey.

French Auction
An index of executive and consumer sentiment in the euro region jumped to 106.2 from 105.1 in November, the European Commission said, exceeding the 105.8 median estimate of economists in a Bloomberg survey. U.S. figures yesterday showed companies added three times more employees than forecast.
The 10-year German breakeven rate advanced as much as seven basis points to 1.97 percentage points, the highest since April 7. The French rate reached the strongest level since May 13.

The yield on French 10-year bonds increased two basis points to 3.35 percent after the nation sold 4.48 billion euros of bonds due in October 2020, and securities maturing in 2026 and 2029.

Belgian bonds tumbled, sending the 10-year yield five basis points higher to 4 percent, after the nation’s political leaders failed to restart seven-party negotiations to form a government, prolonging the deadlock in Europe’s third-most-indebted country. The extra yield over German bonds widened to 105 basis points, the most since Dec. 7. The spread, a gauge of the risk of investing in Belgium, has risen from 79 basis points before the nation’s June 13 election.

Belgian Risk
The cost of insuring Belgium’s government debt using credit-default swaps rose 6 basis points to a record 225, according to CMA.

The European Commission will today continue with a plan to spread the cost of European Union bank failures to senior bondholders, the Daily Telegraph reported.

Michel Barnier, EU financial services commissioner, will issue a “consultation paper,” the newspaper said. A proposal is being considered for a “debt writedown or conversion to help stabilize a failing bank and reduce the need for public funds,” the Telegraph cited an EU official as saying.

Spanish bonds fell, with the 10-year yield rising five basis points to 5.38 percent. Chinese Vice Commerce Minister Gao Hucheng said yesterday in Madrid that China will buy Spanish public debt in the primary and secondary markets.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net