German govt bonds come out top with Spain showing as worst performer in first half of 2010

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Written by Ray Clancy

Friday, 30 July 2010 09:44

German Government Bonds have been the best performing in the first half of the year followed by the Netherlands and Austria, according to a new report.

It means that Franco-German-Benelux-Finland core now represents 60% of the S&P Eurozone Government Bond Index, with the Portugal, Ireland, Greece and Spain grouping down to under 18%.

The report shows overall that German government debt has provided the best year to date return at 6.99%, more than double the S&P Eurozone Government Bond Index total return of 2.67%, followed by the Netherlands at 6.72% and then Austria at 6.69%.

Greek bonds lost over 18% of value, though Greek debt finalised stabilised in June, gaining 1% in the month while France had a solid six months with a 5.65% total return, while Italy was only just in positive territory with a 0.77% return. Spanish bonds fell by 2.41%, the worst performance of the big four Eurozone members.

‘The first six months of 2010 have seen, by the standards of government bond markets, quite dramatically diverging performance by the sovereign constituents of our Eurozone Government Bond Index,’ said James Rieger of S&P Indices.

In addition, as a result of this diverging market performance, and differential net new supply, the composition of the index has also shifted noticeably over the last six months, the report shows. France, Germany, the Benelux and Finland now represent 59.84% of the Index, compared with 58.32% at the start of the year. Portugal/Ireland/Greece/Spain debt combined is down to 17.88% of the Index compared with 18.93% at the start of the year.

It also show that Greek debt now accounts for just over 4% of the index, compared with 5.26% at the start of the year. When the index was launched in November 2009, Italy was the largest component at 23.3%, but this is now down to 22.06%, equal with German debt which has risen slightly in index weight over the period.

Government bond markets are like huge glaciers, so these apparently small shifts in index weight over just a six month period are quite significant,’ added Rieger.

The index consists of European Government Bonds and seeks to measure the performance of the Developed European Government Bond market. All European Government Bonds with maturities over one year are included, with the exception of inflation indexed, floating rate, and zero coupon bonds. The bond must be issued by a country that is classified as a Developed Country by the Bank of International Settlements (BIS) in its international debt securities statistics, and within the Euro-zone. The Index is a rules based, market-value-weighted index.