European Bonds Rise as Stock Losses Fuel Demand for Safe Assets

European government bonds gained, snapping a three-day losing streak, as a decline in global stock markets fueled investor demand for the safest assets.

The yield on the two-year note slid to near an eight-month low after stocks in Asia and Europe dropped, and U.S. stock-index futures declined. Barclays Plc today announced about 1.3 billion pounds ($2.7 billion) of writedowns on credit-related securities tied to the subprime-mortgage market collapse.

``In the current environment bonds are to a large extent being driven by market sentiment and what happens in the equity markets,'' said Stuart Thomson, who helps oversee about $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland.

The yield on the two-year German note fell 3 basis points to 3.86 percent by 10:02 a.m. in London. The price of the 4 percent security due September 2009 rose 0.05, or 50 euro cents per 1,000 euro ($1,469) face amount, to 100.23.

The yield on the 10-year bund, Europe's benchmark, dropped 2 basis points to 4.13 percent.

Stock markets across Europe fell today, mirroring declines in the U.S. and Asia. The main index in France, the CAC 40, slid 1.2 percent and headed for its biggest decline in almost a week. The benchmark indexes in the U.K and Germany both dropped as much as 0.9 percent.
investcommunity.org