Bloomberg News

Greek-German Yield Gap May Shrink by a Third: Technical Analysis

June 28, 2011

June 28 (Bloomberg) -- The additional yield investors demand to hold Greek bonds instead of German debt may drop by almost a third because the premium has risen too fast, Daiwa Securities Capital Markets Co. said, citing trading patterns.

Greece’s 10-year yields touched a euro-era record 18.35 percent on June 17 on concern Prime Minister George Papandreou will be unable to win parliamentary passage of a new austerity plan. The extra yield on Greece’s 10-year debt over German bunds reached 15.03 percentage points on June 16, the most since the euro’s debut in 1999, before falling to 13.92 points yesterday.

The premium climbed this month above the top of a so-called ascending channel that extends from May 2010, signaling it may have reached “excessive levels,” said Eiji Kinouchi, chief technical analyst at Daiwa Securities in Tokyo. The top line of an ascending channel suggests the upper limit of a level.

The widening of the yield spread tends to pause after the end of each quarter, suggesting the recent expansion may ease after this month ends, Kinouchi said. The gap may eventually narrow to 9.5 percentage points, the bottom of the ascending channel, according to Kinouchi.

Papandreou will seek parliament’s approval this week for a 78 billion-euro ($111 billion) package of budget cuts and asset sales, a condition for more aid from the European Union and the International Monetary Fund.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

--With translation by Ritsuko Kameyama in Tokyo. Editors: Nate Hosoda, Nicholas Reynolds

To contact the reporters on this story: Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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