Bloomberg News

German Bonds Climb for Third Week on Greek Debt-Crisis Concern

June 25, 2011

June 25 (Bloomberg) -- German government bonds rose for a third consecutive week as concern that Greece’s government will struggle to pass the austerity measures needed to secure a bailout boosted demand for the region’s safest assets.

The decline pushed yields down the most since the five days ending August 20. Spanish 10-year bonds fell for a third consecutive week, the longest streak of declines since November, on speculation a European Union pledge to stabilize the region’s economy won’t stop the debt crisis from spreading. Italian 10- year bonds sank for a third straight week, increasing the yield difference over German bunds to a record 216 percentage points.

“There’s flight to quality as a result of the ongoing concern around the periphery and specifically the Greek situation,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “Spain is seeing yields rising because the market is cautious that the Greek situation won’t be solved, and that causes contagion to other countries.”

The 10-year bund yield declined 12 basis points over the week to 2.84 percent as of 4:55 p.m. in London yesterday, and reached 2.83 percent, the lowest since Dec. 6. The 3.25 percent security due July 2021 rose 1.09, or 10.90 euros per 1,000-euro ($1,419) face amount, to 103.57. Yields on two-year notes fell 16 basis points to 1.36 percent, their biggest weekly drop since the five days ending May 27.

Merkel Comments

“We have agreed that there will be a new program for Greece,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels yesterday. “This is an important decision that says once again we will do everything to stabilize the euro overall.”

Greece’s next hurdle is to shepherd 78 billion euros of austerity measures through parliament next week. The nation’s two-year bonds rose for the first week in three as traders pared back bets on a near-term default.

Spain’s 10-year bonds fell, pushing the yield up 11 basis points to 5.68 percent, within four basis points of a record. Italy’s 10-year bond yields rose 16 basis points to 4.98 percent, the most since March 10.

German bunds may fall next week as a report due June 30 shows European inflation accelerated in June, upping the chance that the European Central Bank will boost borrowing costs in July. Inflation in the 17-nation euro region accelerated to 2.8 percent from 2.7 percent in May, according to the median estimate of 37 economists in a Bloomberg survey.

“The macro data is of interest, but at the moment it’s likely to be overlaid by the Greek situation and what’s going on there,” Wand said.

The Greek Parliament is scheduled to hold the final session of a debate on the government’s medium-term fiscal plan on June 29 at 10 a.m.

Greek government bonds have handed investors a loss of 19 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while German bunds have returned 0.9 percent. Spain’s debt has gained 1.5 percent and Italy’s has returned 1.2 percent.

--Editors: Keith Campbell, Matthew Brown.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net.

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


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