European Bonds Rise Second Day on ECB; Dollar Holds Gains


European bonds gained a second day on the European Central Bank’s surprise stimulus plan and stocks in the region slipped after the highest close in two months yesterday. Asian equities dropped while the dollar held gains before U.S jobs data.

Yields on 10-year notes fell across western Europe, with German bonds paying 0.96 percent as of 8:41 a.m. in London, and Ireland’s two-year yield falling below zero for the first time. The Stoxx Europe 600 Index slipped 0.2 percent and the MSCI Asia Pacific Index dropped 0.5 percent. Standard & Poor’s 500 Index futures were little changed. South Korea’s won fell 0.5 percent as the Bloomberg Dollar Spot Index headed for its highest close since July 2013. The euro held near a 14-month low. Wheat and corn futures rose with gold and oil.

Payrolls reports today are expected to add to evidence of a U.S. recovery as the Federal Reserve reduces asset purchases. European bonds rallied yesterday as the ECB unexpectedly cut key interest rates and announced a plan to buy privately owned securities, while the Bank of Japan maintained record stimulus. Ukraine’s President Petro Poroshenko voiced “careful optimism” that talks today with pro-Russian rebels will set the course for a cease-fire.

“The trend of the central banks is different,” said Kazuaki Oh’e, a debt salesman at CIBC World Markets Japan Inc. in Tokyo. “The Fed is thinking the next move is not easing but raising” interest rates. The result may be an end to this year’s Treasury market rally, he said. “It’s likely over.”

Yields Diverge

Yields on 10-year bonds from Ireland to Italy dropped to records yesterday. The retreat in European rates saw 10-year U.S. Treasury yields at their highest level versus Group of Seven counterparts since 2007 yesterday. Treasury notes due in a decade yielded 2.44 percent today, little changed after yesterday’s five basis-point advance.

The rate on German and U.K. notes fell 1 basis point today, while yields on French, Italian and Spanish debt tightened by at least three basis points.

ECB President Mario Draghi signaled at least 700 billion euros ($906 billion) in fresh aid for the euro-area economy, which probably saw no growth in the second quarter from the first, according to a Bloomberg survey of economists before gross domestic product data due today.

The ECB will “purchase a broad portfolio of simple and transparent securities” and euro-denominated covered bonds, Draghi said in Frankfurt yesterday.

The region’s refinancing rate, marginal lending facility and deposit rate, which was already negative, were cut by 10 basis points, or 0.10 percentage point, the second reduction this year. Euro-area inflation languished at 0.3 percent last month, trailing the ECB’s 2 percent target. Draghi said details of the program will be announced after the bank’s October rate-setting meeting.

Stoxx 600

Fourteen of the 19 groups on the Stoxx 600 fell today after the gauge jumped 1.1 percent yesterday. All 10 industry groups on the Asia-Pacific measure dropped today, paring its advance for the the week to 0.1 percent.

The MSCI Emerging Markets Index is up 0.7 percent this week, a fourth straight gain, and touched a three-year high on Sept. 4. Hong Kong’s Hang Seng Index retreated 0.2 percent and the Hang Seng China Enterprises Index fell 0.2 percent.

The S&P 500 (SPX) ended the U.S. day down 0.2 percent to 1,997.65, its first close below 2,000 since Aug. 28. Energy shares retreated 1.3 percent. Chevron Corp. and Exxon Mobil Corp. decreased more than 0.7 percent.

The South Korean won weakened to 1,024.25 per dollar, bringing its weekly drop to 1 percent, while the Malaysian ringgit slipped 0.2 percent to 3.184 a dollar, retreating for the sixth time in seven days.

Dollar Index

The Bloomberg dollar gauge, which tracks the greenback against 10 major peers, climbed 0.7 percent yesterday, its steepest one-day gain since March. The euro was little changed at $1.2936 today, after sinking as much as 1.8 percent last session to the weakest level since July 10, 2013. The 18-nation currency weakened against all 16 major currencies tracked by Bloomberg yesterday.

New Zealand’s dollar dropped as much as 0.5 percent to 82.70 U.S. cents, its weakest intraday level since Feb. 24. New Zealand Finance Minister Bill English said in an interview today that he expects the currency to fall further as the U.S. economy recovers and a tamer inflation outlook eases pressure on the central bank to continue raising rates.

Jobs Reports

U.S. data added to signs of a resurgence in the world’s largest economy, where the central bank has been paring back its record stimulus this year.

The Institute for Supply Management’s non-manufacturing index climbed to 59.6 last month, its highest level since August 2005. Jobless claims were little changed last week as an improving economy prompted businesses to retain staff, while a private payrolls report indicated U.S. firms added 204,000 jobs in August, fewer than the 220,000 estimated in a Bloomberg survey of economists.

Today’s monthly Labor Department jobs report will show that U.S. companies boosted payrolls in August by more than 200,000 for a seventh-straight month, according to a separate Bloomberg survey. Nonfarm payrolls saw an addition of 230,000 workers in August, after an increase of 209,000 in July, according to the median of 91 economists’ estimates.

West Texas Intermediate crude rose 0.2 percent to $94.64 a barrel today, following a 1.1 percent drop last session to the lowest settlement price since January.

Corn for December delivery increased as much as 2 percent to $3.5325 a bushel, rebounding from $3.4375 yesterday, the lowest for a most-active contract since June 2010. Wheat jumped 1.7 percent to $5.39 a bushel, paring its weekly drop to 4.4 percent.

(The level of European stocks was corrected in a previous version of this story.)


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