Bloomberg News

Greek, Portuguese, Spanish Notes Jump on German Rollover Deal

June 30, 2011

June 30 (Bloomberg) -- Greece’s government notes led gains by securities from the euro region’s most indebted countries as Germany’s biggest banks agreed on a proposal to roll over Greek debt holdings to stave off the area’s first sovereign default.

German two-year government note yields reached the most in nearly three weeks as European Central Bank President Jean- Claude Trichet signaled the ECB will raise interest rates next week and euro-region inflation data topped the bank’s 2 percent ceiling for a seventh month in June. The nation’s banks have agreed to roll over at least the Greek bonds they’re holding that mature through 2014, which amount to about 2 billion euros ($2.9 billion), Finance Minister Wolfgang Schaeuble said in Berlin today. The country’s so-called bad banks will provide 1.2 billion euros as well, he said.

Greece’s two-year note yields dropped 58 basis points to 26.73 percent at 4:26 p.m. in London. The 4.6 percent security maturing in May 2013 advanced 0.62, or 6.20 euros per 1,000-euro ($1,449) face amount, to 71.24. Ten-year yields rose four basis points to 16.33 percent.

“Any good news on the rollovers is good news for peripherals,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London, referring to bonds from the euro-region’s most indebted nations. “For now the market is content to give peripherals a bit of relief, but I don’t think sentiment will be hugely constructive until we see a general pickup in global growth.”

Spanish, Italian Yields

Spain’s 10-year yield dropped 12 basis points to 5.45 percent, while two-year yields fell 13 basis points to 3.46 percent. Italian 10-year bond yields declined six basis points to 4.88 percent and those on similar-maturity Portuguese bonds fell 18 basis points to 10.91 percent.

Two-year German yields advanced six basis points to 1.61 percent, while the ten-year bund yield rose five basis points to 3.03 percent.

“This deal keeps hopes underpinned that the ball is rolling and there will be some relief on Greece,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “That opens the door for the ECB to keep normalizing rates, which keeps pressure on the short end, since we already had Trichet’s comments earlier cementing the July rate hike.”

Officials are in “a state of strong vigilance,” Trichet told lawmakers in Brussels today, a phrase he has used before previous monetary tightening. Euro-region inflation remained at 2.7 percent for a second month, data showed today, less than the 2.8 percent economists had forecast.

‘Very, Very Clear’

“Trichet’s words were very, very clear this morning: whatever happens, the ECB will raise rates next week,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “Inflation is well above the ECB’s comfort level and it’s likely to stay there for some time, therefore it’s likely to sustain the tightening bias.”

German bund yields have dropped 32 basis points this quarter as policy makers grappled to stem a funding crisis in the region’s most indebted nations, boosting demand for the region’s safest assets. Greek 10-year yields jumped more than 3.5 percentage points over the same period.

Greek lawmakers today backed a bill to authorize an austerity plan required to keep rescue aid flowing. Prime Minister George Papandreou won the vote by 155 to 136, allowing him to implement a 78 billion-euro package of tax increases and asset sales that was a condition of receiving further European Union funds.

ECB Tightening

The ECB tightened in April for the first time in almost three years, lifting the key rate a quarter point to 1.25 percent. Inflation in the 17-nation euro region has been in breach of the central bank’s 2 percent limit since December. At the same time, the threat of a Greek default is roiling European markets and clouding the economic outlook. ECB officials next convene in Frankfurt on July 7.

German unemployment declined for a 24th straight month in June, underscoring the resilience of Europe’s largest economy amid the euro region’s debt crisis. The number of people out of work fell a seasonally adjusted 8,000 to 2.97 million, the Federal Labor Agency said today. The jobless rate held at 7 percent, the lowest since records for a reunified Germany began.

German government bonds handed investors a gain of 0.1 percent this year, compared with 2.6 percent for U.S. Treasuries and 2 percent for U.K. gilts, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds have lost 16 percent, the indexes show.

--Editors: Keith Campbell, Mark McCord.

To contact the reporter on this story: Emma Charlton in London at; Lucy Meakin in London at

To contact the editor responsible for this story: Daniel Tilles at

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