Euro bonds in seven-month surge as ECB boosts Italy to Germany

By Anchalee Worrachate

Euro-area government bonds were set for their longest monthly winning streak in nine years after weak data from retail sales to factory output signaled European Central Bank efforts to revive the economy are not yet finished.

Securities from Europe’s most-indebted to its highest-rated nations were headed for a gain in July as the region’s struggling economy convinces investors the ECB will need to add more stimulus. Reports today showing inflation in the currency bloc slowed to about a quarter of policy makers’ target and unemployment remained rooted near an all-time high added to bets measures that tend to boost government bonds will be put in place.

“Low growth and low inflation are predominant themes in the euro area’s bond market,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “Those who were bearish bonds earlier this year found themselves on the wrong side of the market. The economic outlook remains fragile and people are revising down their expectations on long-term rates.”

Euro-region bonds advanced 0.98 percent this month through yesterday, according to Bank of America Merrill Lynch Euro Government Index set for a seventh month of gains, the longest streak since January 2005.

Longest Streak

German 10-year yields fell one basis point, or 0.01 percentage point, to 1.16 percent at 11:56 a.m. London time, on course for a decline of nine basis points since the end of June. That would be the benchmark security’s seventh monthly gain, the longest streak since January 2005, after reaching a record-low 1.109 percent on July 29.

The 1.5 percent bund due May 2024 rose 0.115, or 1.15 euros per 1,000-euro ($1,339) face amount, to...