Bloomberg News

Irish Bonds Decline Amid Concern Over Greece’s Austerity Vote

June 22, 2011

June 22 (Bloomberg) -- Irish and Portuguese bonds fell amid speculation Greek Prime Minister George Papandreou’s confidence- vote victory doesn’t signal an end to the euro region’s sovereign debt crisis.

Ireland’s two- and 10-year yields rose to all-time highs, while Portugal’s two- and 10-year yields reached records. Attention now turns to whether Papandreou can push through parliamentary approval next week of a 78 billion-euro ($112 billion) package of budget cuts to stave off the threat of default. German bunds rose as investors sought the euro area’s safest assets.

“The market is still wary, despite the Greek confidence vote,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “The austerity measures may have a much rougher ride getting through parliament. The market is a bit concerned that the situation hasn’t greatly changed, and the periphery is still vulnerable.”

Portuguese 10-year yields rose 18 basis points to 11.31 percent as of 4:27 p.m. in London after reaching 11.36 percent. Two-year note yields added 49 basis points to to 13.71 percent. They earlier touched 13.75 percent. Irish 10-year yields jumped 32 basis points to 11.72 percent. The two-year note yield reached a euro-era high of 13.25 percent, up 48 basis points from yesterday.

The International Monetary Fund, contributor of a third of the bailout money for Greece and the two other euro-area countries that have received bailouts, Ireland and Portugal, has warned European Union leaders that a failure to take decisive action on the debt crisis risks triggering “large global spillovers.”

Greek Notes Drop

Greek two-year notes dropped, erasing an earlier advance made after Papandreou’s victory paved the way for the country to implement austerity measures needed to receive further aid.

Papandreou reshuffled his cabinet and sought the approval of the chamber after fending off a revolt within his socialist Pasok party last week. A total of 155 Greek lawmakers supported the motion in the 300-seat parliament in Athens early this morning, with 143 voting against, the speaker, Filippos Petsalnikos, said.

European finance ministers said this week that they would withhold approval of a 12 billion-euro payment to the country promised for July until passage of the plans to cut the deficit, sell state assets and impose a “crisis levy” on wages.

European Commission President Jose Barroso said the vote “removes an element of uncertainty from an already very difficult situation.” He said in an e-mailed statement from Brussels it was “good news for Greece and for the European Union as a whole.”

Austerity

Greek two-year note yields, which surpassed 30 percent for the first time last week, rose 25 basis points to 27.89 percent. They reached as low as 27.23 percent earlier. The 4.6 percent security due May 2013 fell 0.45, or 4.50 euros per 1,000-euro face amount, to 68.815. The 10-year bond yield dropped 12 basis points to 16.85 percent. It rose to a euro-era record 18.35 percent on June 17.

“Attention will turn to next week’s vote on the austerity package,” said Huw Worthington, a fixed-income strategist at Barclays Capital in London. “It looks like that will be passed. Then, they’ll get the money in July and we may see a bit of a relief rally.”

Greek Losses

Greek and Portuguese securities have lost 19 percent in 2011, while Irish debt has dropped 10 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German government bonds have returned 0.2 percent, while Treasuries gained 3.2 percent, the indexes show.

The cost of insuring European sovereign debt against default rose on concern Greece may still struggle to pass austerity measures needed to secure further international aid.

Swaps on Greece rose 36 basis points to 1,933, according to CMA. That implies an 81 percent chance of default within five years. Contracts on Ireland jumped 12 basis points to 748, Portugal increased 17 to 769 and Italy climbed 10.5 to 178, while Spain rose 7 to 275.

German bunds rose as the nation sold 3.4 billion euros of 10-year bonds at an average yield of 2.96 percent.

Germany’s 10-year bund yield was three basis points lower at 2.95 percent. It declined to 2.91 percent on June 16, the lowest since Jan. 11. Yields on two-year notes were five basis points lower, at 1.49 percent. They dropped to 1.43 percent on June 16, the lowest since Feb. 22.

Investors bid for 1.55 times the amount of German 10-year bunds on offer. That compares with a co-called bid-to-cover ratio of 1.70 at the previous auction of the same securities held on May 25, which were allotted at a yield of 3.04 percent.

--With assistance from Maria Petrakis in Athens and Abigail Moses in London. Editors: Mark McCord, Peter Branton

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh 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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