German bonds fall before auction


German government bonds dropped for a second day before the nation auctions as much as €5 billion of debt maturing in July 2022 and €1 billion of inflation-linked securities.

The decline drove the rate on 10-year bunds to the highest in almost a month.

German inflation, calculated using a harmonised European Union method, stayed at 2.2 per cent in May from the previous month, the Federal Statistics Office in Wiesbaden said today.

A separate report may show industrial production in the euro area fell 1.2 per cent in April, according to a Bloomberg News survey of economists.

Italy will sell one-year bills today, before holding bond auctions tomorrow.

German 10-year yields rose seven basis points, or 0.07 percentage point, to 1.49 per cent at 7.26am London time, the highest since May 16.

Bunds fell yesterday and Spain's 10-year bond yield surged to a euro-era record after Fitch Ratings said European countries may face downgrades because policy makers are failing to bring the sovereign debt crisis under control.

German debt has returned 3.1 per cent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Spanish securities have lost 5.4 per cent, and Italian bonds rose 5.9 per cent.