Bloomberg News

Portuguese Bonds Drop, Greek Yields Near Record on Default Bets

June 17, 2011

June 17 (Bloomberg) -- Portuguese bonds fell and Greek yields stayed near records as German Chancellor Angela Merkel and French President Nicolas Sarkozy prepared to meet amid investor skepticism that Greece can avoid a default.

German two-year notes headed for a second weekly gain, with yields approaching a four-month low as Greek Prime Minister George Papandreou’s failure to win support for more austerity boosted demand for a haven. A default by Greece is “almost certain,” former Federal Reserve chairman Alan Greenspan said. Irish two- and 10-year yields also jumped to the highest since the euro’s introduction.

“The overwhelming concern over possible contagion is weighing on Portugal and Ireland,” said Eric Wand, a fixed- income strategist at Lloyds Bank Corporate Markets in London. “There’s a hope that the weekend may act as some kind of circuit-breaker, but heading into it, there’s still concerns that the Greek situation won’t get sorted.”

The Portuguese 10-year yield increased 24 basis points to a euro-era record of 11.11 percent at 10:30 a.m. in London, while that on the country’s two-year securities declined two basis points to 13.06 percent, within four basis points of a record. The Greek two-year yield fell 35 basis points to 28.25 percent, after surging yesterday past 30 percent for the first time. The 10-year yield fell to 17.50 percent.

Ireland’s two-year yield climbed above 13 percent for the first time, reaching as high as 13.11 percent. The 10-year bond yield increased to 11.69 percent.

Greek Spread

Greek government bonds lost investors 8.7 percent this month, pushing their decline in 2011 to 20 percent, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Portuguese debt handed investors a 19 percent loss this year. German bonds, perceived to be the region’s safest securities, returned 0.7 percent.

The extra yield, or spread, that investors demand to hold Greek 10-year bonds instead of similar-maturity German notes surged to a record 1,503 basis points today, before settling at 1,499 basis points. Portugal’s 10-year bonds yielded 810 basis points more than their German counterparts.

“The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting are very small.”

Merkel and Sarkozy are meeting as leaders in the region struggle to reconcile German calls that investors help bail out Greece with European Central Bank opposition, backed by France, to a compulsory move that might trigger a default. Papandreou fired his finance minister in a cabinet overhaul aimed at fending off a party rebellion and ensuring the passage of austerity measures needed for a fresh bailout.

The German bund yield rose three basis points to 2.95 percent,. It reached 2.91 percent yesterday, the lowest since Jan. 11. Yields on two-year notes rose five basis points to 1.50 percent. They dropped to 1.43 percent yesterday.

--With assistance from Brian Parkin and Tony Czuczka in Berlin, and Maria Petrakis and Natalie Weeks in Athens. Editors: Keith Campbell, Mark McCord.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh News at lmnyanda@bloomberg.net Keith Jenkins in London at kjenkins3@bloomberg.net

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


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