Bloomberg News

Greece, Portugal, Ireland Notes Climb as Greek Bailout Readied

June 03, 2011

June 3 (Bloomberg) -- Greek two-year notes rose, sending yields to their biggest intraday drop in almost five months, as European policy makers readied an additional aid package for the debt-stricken nation.

German 10-year government bonds fell, headed for their first decline in eight weeks, while two-year notes depreciated for a fifth consecutive day, pushing yields up by the most since the week ended March 25. Luxembourg’s Jean-Claude Juncker, who leads a group of euro-area finance ministers, said the European Union will approve a new aid plan for Greece. Greece’s Finance Ministry said a review of the country’s economic progress by the EU, International Monetary Fund and European Central Bank concluded “positively” today.

“There’s speculation that following the end of the latest review that more funding will be forthcoming, and that will tide Greece over its funding gap,” said Nick Stamenkovic, a fixed- income strategist at RIA Capital Ltd. in Edinburgh. “Short- dated Greek bonds continue to rally as market expectations of a default fade. Increasing optimism about Greece is also reducing some of the flight to quality.”

Two-year Greek yields fell 146 basis points to 23.09 percent as of 3:55 p.m. in London. They dropped as much as 175 basis points to 22.81 percent, the biggest intraday drop since Jan. 13. They extended their weekly decline to 2.4 percentage points, the most since the five days ending May 14, 2010. The 4.6 percent security due May 2013 gained 1.870, or 18.70 euros per 1,000-euro ($1,457) face amount, to 73.50. Ten-year yields fell 22 basis points to 16.03 percent.

Greek, Portuguese Debt

Greek debt led gains by two-year securities from the region’s bailed-out nations. Portuguese note yields fell 25 basis points to 10.94 percent after touching a two-week low of 10.86 percent, while yields on Irish securities of a similar maturity declined 18 basis points to 11.36 percent.

A deal “gives you a reason just to take on a bit of risk, or readjust your position to be less short of risk at least,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “It would be something that gives Greece another year’s breathing space.”

With the progress review complete, EU leaders will now focus on wrapping up a new bailout package to prevent the euro area’s first sovereign default. A year after the rescue that aimed to stop the spread of the debt crisis, Greece remains mired in recession and shut out of financial markets. Moody’s Investors Service said June 1 that it sees a 50 percent chance of a Greek default.

Bund Yields Fall

The 10-year German bund yield advanced six basis points to 3.05 percent. It earlier reached 2.96 percent, the lowest since Jan. 12, after a report showed U.S. employers added the fewest number of workers in eight months in May and unemployment unexpectedly rose.

The yield on German two-year notes was four basis points higher at 1.68 percent after reaching 1.56 percent on May 30, the least in 10 weeks.

The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity narrowed 54 basis points over the week to 1,289 basis points.

European services and manufacturing growth slowed less than initially estimated in May. A composite index based on a survey of euro-area purchasing managers in both industries fell to 55.8 from 57.8 in April, London-based Markit Economics said in a statement today. That’s above an initial estimate of 55.4 published on May 23. A reading above 50 indicates expansion.

German government bonds have handed investors 0.1 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while U.S. Treasuries have returned 2.8 percent. Greek bonds have handed investors at 12.5 percent loss, the indexes show.

--Editors: Keith Campbell, Matthew Brown.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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