European Government Bonds Drop Before France, Spain Sell Debt

-- European government bonds declined for a second day as France and Spain prepared to sell as much as 12 billion euros ($15 billion) of government securities.
Two-year German note yields rose from near a record low as gains in Asian equities and U.S. stock-index futures sapped demand for fixed-income assets. Euro-region governments will issue about 20 billion euros of bonds every week in the first quarter of 2009, up from 10 to 15 billion euros a week during the past two years, according to Societe Generale SA.
“We are in the middle of a very heavy net supply environment,” said Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING Groep NV, the largest Dutch financial-services company.
The yield on the German two-year note climbed one basis point to 1.25 percent by 7:12 a.m. in London. The 2.25 percent security due December 2010 declined 0.02, or 20 euro cents per 1,000-euro ($1,258) face amount, to 101.75.

The yield on the 10-year bund, Europe’s benchmark government security, rose two basis points to 3.01 percent. Bond yields move inversely to prices.
France will sell as much as 7.5 billion euros of two-, four- and five-year bonds and 800 million euros of inflation-linked securities today. Spain will offer about 3.5 billion euros in seven- and 20-year debt.
Governments around the world are increasing borrowing to finance bank bailouts and revive their economies amid the fallout from the global credit crisis. The 16 nations using the euro will borrow about $1.1 trillion in 2009, while the U.S. will issue at least $1.5 trillion of debt. The U.K. plans to sell $207 billion of gilts in the year through March.
Asian stocks rose for the first time in four days, with the MSCI Asia Pacific Index advancing 0.9 percent. The MSCI World Index added 0.3 percent.
German bonds earned investors 0.8 percent this year, compared with a loss of 1.4 percent for gilts and a drop of 2.5 percent for Treasuries, according to Merrill Lynch & Co.’s German Federal Governments, U.K. Gilts and U.S. Treasury Master indexes.


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