German bunds advanced, with 10-year yields approaching a four-week low, after Murcia became the third Spanish region to say it will need emergency loans, boosting demand for the euro-areaâ€™s safest assets.
Italian 10-year bonds weakened even after borrowing costs dropped at an auction. Spanish securities slid as Valencia also signaled it needs funds, a day after Catalonia said it required 5 billion euros ($6.3 billion). European Central Bank policy makers meet in Frankfurt on Sept. 6, when president Mario Draghi may announce details of the bankâ€™s latest efforts to lower the borrowing costs of countries such as Spain and Italy.
â€œAs the situation in the periphery becomes more volatile into the ECB meeting, there is still margin for bunds to rally from here,â€ said Gianluca Ziglio, a fixed-income strategist at UBS AG in London. â€œI would expect yields to fall back to the 1.25 percent to 1.20 percent level into September.â€
Germanyâ€™s 10-year yields fell four basis points, or 0.04 percentage point, to 1.34 percent at 12:19 p.m. London time. They dropped to as low as 1.30 percent yesterday, the least since Aug. 3. The 1.75 percent bond due in July 2022 climbed 0.405, or 4.05 euros per 1,000-euro face amount, to 103.775.
German bunds also rose as a report showed economic confidence in the euro area fell to a three-year low in August.
An index of executive and consumer sentiment in the 17- nation euro area dropped to 86.1 from 87.9 in July, the European Commission in Brussels said today. Thatâ€™s the lowest since August 2009. Economists had forecast a decrease to 87.5, the median of 26 estimates in a Bloomberg News survey showed.
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