“Germany is losing a yearlong borrowing-cost advantage over the U.S. as healing in the 17- nation euro area lures investors to greater returns in Italian and Spanish bonds.
German securities had their worst January since at least 1986 and options traders hold almost three times more bets on further declines than a rally, according to data compiled by Bloomberg. That contrasts with Treasuries, where wagers through derivatives are about even. JPMorgan Chase & Co. says Germany’s 10-year yields will exceed U.S. rates for the first time since February 2012 by the end of the third quarter.
Demand for the euro area’s benchmark assets is waning after European Central Bank President Mario Draghi dispelled concern the bloc may break up and as banks pay back emergency loans two years earlier than required. With confidence recovering from last year’s debt crisis, German two-year note yields climbed to a 10-month high in January from below zero, while relative borrowing costs tumbled in Italy and Spain, the region’s third- and fourth-largest economies.
“Bunds could come under pressure as we expect to see more diversification into higher-yielding peripheral bonds,” said Oliver Eichmann, a money manager at DWS Investment GmbH in Frankfurt, Germany’s biggest mutual fund, which oversees $379 billion. “We prefer Treasuries in the near term.”
Draghi allayed investors’ concern the euro region would collapse after he pledged in July to do “whatever it takes” to hold the currency bloc together. The Stoxx Europe 600 Index of equities has rallied 12 percent since then and a composite gauge of euro-area services and manufacturing output improved to 48.6 in January, the highest level since March.
