Growth concern reflects on bonds in EU countries

Berlin: German 10-year bonds advanced for a fifth week as concern that the global economic recovery is faltering and a banking crisis in Ireland is deepening spurred demand for safest assets.

Ten-year and 30-year yields declined to record lows as Standard & Poor's cut Ireland's credit rating. Nobel Prize-winning economist Joseph Stiglitz said the euro region may slip back into recession. Bonds pared weekly gains yesterday after Federal Reserve Chairman Ben S. Bernanke said the central bank will do all "it can" to support the economy.

"Risk to the global economy is on the downside," said Kommer van Trigt, a portfolio manager at Robeco Groep in Rotterdam. "We like German bonds for their safety status."

Yield

The yield on the 10-year German bond dropped 6 basis points in the week to 2.21 per cent, after reaching a record low of 2.09 per cent on August 25.

The 30-year yield fell to a record low of 2.578 per cent yesterday.

Concern that some European countries are struggling to contain their deficits resurfaced after S&P cut Ireland's long- term rating to AA-, citing rising costs to bail out the country's banks.

The extra yield investors demand to hold Irish 10-year bonds instead of their German equivalents rose to a record 352 basis points yesterday.

The Greek-German spread climbed above 900 basis points for the first time since the European Union announced a 750 billion euro (Dh3.5 trillion) rescue package in May.

Bonds may decline

Bonds may decline next week on speculation European confidence in the economic outlook rose to the highest in almost two-and-a-half years.

An index of executive and consumer sentiment in the 16 euro nations increased to 101.6 in August from 101.3 in July, the European Commission in Brussels will say August 30, according to a Bloomberg survey.

German government bonds handed investors 3.7 per cent this month, the most since November 2008 at the height of the credit crunch, according to indexes compiled by Bank of America Corp's Merrill Lynch unit.