Inflation Accelerates in Germany; German Bonds Fall

Throwing yet another wrench at any new bailout plan, spcially the leveage kind, German 10-year bonds dropped for a fourth day after inflation in five states accelerated in September.

The annual inflation rate jumped to 2.8 percent from 2.3 percent in North Rhine-Westphalia, and rose to 2.3 percent from 1.9 percent in Hesse.

Inflation in the in Saxony, Bavaria and Brandenburg also rose.

Bloomberg: "The annual inflation rate quickened to 2.8 percent from 2.3 percent in North Rhine-Westphalia, and to 2.3 percent from 1.9 percent in Hesse, the states’ statistics offices said today. The rates in Saxony, Bavaria and Brandenburg also climbed.

Five-year notes fell as investors bid for fewer securities than were available at an auction of the debt today. Quickening inflation makes it less likely the European Central Bank will cut interest rates at its policy meeting next week. Greek two- year notes dropped as German Chancellor Angela Merkel signaled policy makers may review the terms of the Mediterranean nation’s second bailout.

“The market could see today’s inflation numbers as a good reason for the ECB to explain that a rate cut is not needed in the short term,” said Annalisa Piazza, a fixed-income strategist at Newedge Group SA in London. “German paper is quite expensive relative to other European countries, so demand is not as strong as it used to be.”

The 10-year German yield rose three basis points to 2 percent at 11:44 a.m. in London, the first time it has breached that level since Sept. 15. The 2.25 percent security due September 2021 lost 0.310, or 3.10 euros per 1,000-euro ($1,368) face amount, to 102.265".