European bonds fell, with the 10-year German benchmark bund having its worst week since December 2001, on speculation that a US invasion of Iraq will be delayed.
The German 4 1/2 percent bund due January 2013 dropped 1.54, or 15.40 euros per 1,000-euro (US$1,076) face amount, to 103.83 this week. The yield added 19 basis points to 4.02 percent. The yield reached 3.8 percent Monday, the lowest since April 1999. A basis point is 0.01 percentage point.
"If the likelihood of an attack has decreased or there's the perception a war would be resolved quickly, it's a bond negative event," said Ralf Welge, an analyst at Commerzbank AG in Frankfurt.
Bonds plunged on Thursday, with the two-year note posting its biggest decline in seven months, after Cable News Network reported on Wednesday that the CIA is in talks with Iraqi military leaders about surrendering in the event of an attack, suggesting a conflict may be short-lived.
European bonds also fell as stocks surged for a second day yesterday, prompting some investors to shun fixed-income securities in favor of equities. The Dow Jones Stoxx 50 rose 5 percent, extending yesterday's gain of almost 7 percent. Germany's DAX Index added 2.1 percent. Equities also rose in France, Italy and Spain.
The German 3 percent note due December 2004 plunged 0.42, or 4.2 euros per 1,000-euro face amount, to 100.91 in the week. Its yield rose 24 basis points to 2.45 percent, giving the note the worst week since January 2002. It increased 5 basis points on Friday. On Thursday, the yield rose 15 basis points, the biggest one-day increase in seven months.
European bonds due in more than a year have gained 2 percent since the start of January, including reinvested interest and according to Bloomberg indexes. South African bonds have been the best performers, giving a 3.4 percent return. US bonds have returned 1.2 percent.
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