Frankfurt: German bonds halted gains last week, paring their biggest monthly advance since the aftermath of Lehman Brothers Holdings' collapse in 2008, on bets measures to cut European deficits will restore confidence.
The 10-year bond, Eur-ope's benchmark government security, declined in the past five days, after gains early in the week pushed the yield to the lowest on record. Spain and Italy announced additional budget cuts in the week. Reports showed Germany's inflation rate accelerated in May and import prices rose last month at the fastest annual pace since August 2008.
Sovereign worries
"The sovereign worries in euro land are starting to dissipate somewhat and that's taking the shine off bunds," said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets, a broker for banks and investors.
Countries "are starting to tackle their poor fiscal positions and that should be well received by the markets."
The 10-year bond yield increased two basis points to 2.67 per cent as of 4.45pm in London on Saturday, leaving its decline during May at 35 basis points, the biggest since November 2008, two months after Lehman filed for bankruptcy. It dropped as low as 2.56 per cent on May 25, the least since Bloomberg started compiling the data in 1989.
Bonds pared gains last week as Italian Prime Minister Silvio Berlusconi announced 24.9 billion euros (Dh112 billion) in budget cuts and Spanish Prime Minister Jose Luis Rodriguez Zapatero's cost- cutting measures were approved by a single vote in Parliament.
Italy's borrowing costs dropped at an auction of 10-year bonds Friday. Demand for the safest assets also waned as the rate banks say they pay for three-month loans in dollars fell for the first time in 14 days.
"Tensions have definitely eased," said David Keeble, head of fixed-income strategy at Credit Agricole Corporate and Investment Bank in London.
