German Bunds Rally After Euro-Area Growth Forecasts Are Cut

(Bloomberg) -- German bonds gained after the European Commission cut its economic growth forecasts for the region and projected a rising fiscal deficit in Italy.

Benchmark bund yields fell to the lowest level in a month, while the premium investors demand to hold Italian notes widened to the highest in nearly two weeks. The Commission cut its 2019 euro-area growth forecast to 1.2 percent from 1.3 percent, while Germany’s was more than halved to 0.5 percent. It projected Italy’s fiscal deficit to rise to 3.5 percent in 2020, above the EU’s guidelines.

“These are bad numbers for Italy -- more EU bashing ahead of the parliamentary elections,” said Arne Lohmann Rasmussen, head of fixed income research at Danske Bank A/S, referring to the vote later this month. “Italian bonds could certainly come under pressure again.”

German 10-year yields fell as much as five basis points to minus 0.04 percent, the lowest level since April 2. Italy’s yield spread over Germany rose to 261 basis points from 257 basis points on Monday. The euro fell against the dollar, declining 0.1 percent to $1.1186.

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net

To contact the editor responsible for this story: Ven Ram at vram1@bloomberg.net

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