German Bonds Advance as Greece Bailout Talks Falter; Italian Spread Widens

06.02.2012 11:35

Bloomberg: German bonds rose for the first time in four days as Greek Prime Minister Lucas Papademos struggled to win an agreement on budget-cutting measures after a weekend of talks to avoid an economic collapse.
The gains pushed the German 10-year yield down from the most since Jan. 26 as European leaders insisted that Greece accept terms demanded by international lenders before allowing it to access a second aid package. The yield difference between bunds and Italian 10-year bonds widened for a second day. French and Dutch two-year notes rose before the countries auction treasury bills. The Stoxx Europe 600 Index slipped 0.6 percent, boosting demand for the safety of top-rated German debt securities.
“The Greek deadline is looming over the markets and the uncertainty helps underpin demand for bunds,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “No-one is convinced yet that an agreement will go through.”
Germany’s 10-year yield decreased six basis points, or 0.06 percentage point, to 1.87 percent at 10:03 a.m. London time, after rising to 1.95 percent on Feb. 3. The 2 percent security due January 2022 climbed 0.540, or 5.40 euros per 1,000-euro ($1,308) face amount, to 101.135. French two-year yields dropped one basis point to 0.58 percent, while similar maturity Dutch notes yielded 0.26 percent, from 0.27 percent.
Bund yields fell below those of 10-year Treasuries for the first time since Jan. 31.
Athens Talks
Greece’s stability has been at stake as efforts to win a second bailout from the so-called troika -- the European Commission, the European Central Bank and the International Monetary Fund -- hung in the balance as negotiations in Athens failed to clinch an agreement. The country has a 14.5 billion- euro bond payment on March 20.
“If we determine that it’s all going wrong in Greece, then there won’t be a new program -- and that means in March you’ll have a declaration of bankruptcy,” Luxembourg’s Jean-Claude Juncker, who chairs euro-region finance meetings, told Der Spiegel magazine in an interview published yesterday. Greek Finance Minister Evangelos Venizelos said two days ago the negotiations for more funding hung “on a razor’s edge.”
The rate on Greek debt due in October 2022 increased six basis points to 34.25 percent. The price fell to 20.59 percent of face value.
Papademos will meet Greek political party leaders today to hammer out the details of debt-cutting measures after imposing an 11 a.m. deadline for proposals. Antonis Samaras, the head of the second-biggest party, New Democracy, indicated he would oppose some of the measures put forward by creditors.
Italian Debt
The yield on Italian 10-year bonds was little changed at 5.70 percent.
The extra yield investors demand to hold Italy’s 10-year bonds instead of German bunds widened five basis points to 3.82 percentage points. The spread narrowed on Feb. 3 to the least since Dec. 7. The gap between Spanish and German 10-year yields increased 11 basis points to 3.17 percentage points after also slipping last week to the least since Dec. 7.
Spanish and Italian bonds have rallied since the European Central Bank offered unlimited three-year cash to the region’s financial institutions in December to avoid a credit crunch. The securities have advanced amid speculation banks are buying them to use as collateral with the ECB under the program, known as the longer-term refinancing operation. The central bank will offer another set of the loans this month.
German bonds have lost 0.5 percent this year, after a 9.7 percent gain in 2011, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Greek securities have handed investors a 0.9 percent loss, adding to last year’s slump of 62 percent, the indexes show. Portuguese bonds are down 1.7 percent this year.
reporters on this story: Lukanyo Mnyanda in Edinburgh