Bloomberg News

Greek Bonds Advance Amid Optimism Over Greek Bailout Agreement

June 04, 2011

June 4 (Bloomberg) -- Greek government notes advanced, pushing two-year yields down the most in over a year, as European officials drew closer to an agreement on a new aid package for the debt-stricken nation.

The Greek two-year note yield dropped below 23 percent for the first time since April as European Union and International Monetary Fund officials moved to complete a review of Greece’s plan for 78 billion euros ($113 billion) in asset sales and austerity measures. German 10-year bunds, Europe’s benchmark security, fell for the first week in eight.

“Developments over the week have raised fresh optimism on the Greek situation,” which has benefited Greek bonds, said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The euro-region data flow has been more or less neutral so I would say the Greece story has been the major driver of bunds as well.”

Two-year Greek note yields fell 252 basis points to 22.83 percent as of 4:32 p.m. in London yesterday, posting their the biggest weekly drop since the five days ending May 14, 2010. Ten-year yields fell 49 basis points to 15.93 percent.

The 10-year German bund yield climbed six basis points to 3.04 percent, after reaching 2.96 percent, the lowest since Jan. 12. The yield on German two-year notes rose 12 basis points to 1.68 percent, rebounding from a 10-week low of 1.56 percent on May 30.

The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity narrowed to 1,292 basis points from 1,326 basis points at the end of last week.

Interest-Rate Decision

Greece’s two-year yield surged more than 700 basis points since the start of April. Europe’s financial leaders need to hammer out a revised Greek package by the end of June, in time to persuade the IMF to pay out its share of the next tranche of loans and before a summit of EU leaders on June 23-24. The IMF had indicated that it would withhold its payment unless the EU comes up with a plan to close Greece’s 30 billion-euro funding gap for 2012.

Bunds may fall next week if European Central Bank President Jean-Claude Trichet indicates a July interest-rate increase after policy makers meet on June 9. All 46 economists in a Bloomberg News survey forecast the bank will leave rates unchanged after Trichet last month signaled rates will stay on hold until after June.

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 lost 12.5 percent in the same period, the data show.

--Editors: Matthew Brown, Keith Campbell

To contact the reporter on this story: 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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