Bloomberg News

Spanish Yield Spread to Bunds Widens on Greek Rollover Concern

July 05, 2011

July 5 (Bloomberg) -- Spanish and Italian bonds fell, increasing the additional yield investors demand to hold the securities instead of German bunds, on concern Greece’s debt crisis may continue to harm its euro-area peers.

Portuguese 10-year bonds also sank as the Financial Times reported commitments from banks to reinvest funds from maturing securities into new Greek debt may fall short of policy makers’ target. German two-year notes snapped a run of six declines as data showed retail sales in the euro region declined the most in more than a year in May. Greek Finance Minister Evangelos Venizelos said Greece’s banks are willing to roll over bonds as part of a rescue plan.

“There’s ongoing uncertainty about if or how we can get out of this mire,” said Steven Mansell, an interest-rate strategist at Citigroup Inc. in London. “If we do get any pronounced tightening of periphery spreads, we would look to position against that.”

The yield on Spanish 10-year debt climbed six basis points to 5.45 percent as of 2:33 p.m. in London, pushing the difference in yield, or spread, with bunds five basis points wider to 243 basis points. The 5.5 percent Spanish security maturing in April 2021 fell 0.415, or 4.15 euros per 1,000-euro ($1,448) face amount, to 100.325. Spain is scheduled to sell bonds maturing in 2014 and 2016 on July 7.

The yield on equivalent-maturity Italian bonds advanced six basis points to 4.97 percent, widening the spread over bunds to 195 basis points. Yields on Portuguese 10-year debt increased 12 basis points to 11.03 percent. Greek two-year note yields jumped 82 basis points to 26.94 percent.

Spanish Sale

“The dominant factor for Spain this week is supply,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “That will be a good gauge of investor demand. There might be a concession being priced in.”

Yield spreads to bunds widened for the first day in six yesterday after Standard & Poor’s said a bond-rollover plan may place Greece in “selective default.”

Finding a voluntary mechanism to save Greece 30 billion euros of payments is “critical,” the French banking federation said in a June 24 debt proposal. Informal clearance from rating agencies that the strategy won’t trigger a downgrade to default for Greece was a condition of the plan.

Greek banks are willing to roll over their bonds, Finance Minister Venizelos said in an interview with Bloomberg Television in Athens today. “The Greek banks are ready to participate,” he said.

Bunds Preferred

Banks that agree to exchange their Greek government bonds for new securities may incur impairment charges on debt maturing through June 2014 that they continue to hold, according to Moody’s Investors Service.

Ten-year bund yields were little changed at 3.02 percent today, while the two-year German yield fell one basis point to 1.65 percent. The yield on 30-year German bonds fell three basis points to 3.67 percent.

Carmignac Gestion, a Paris-based fund with more than 50 billion euros under management, is only buying long-dated German bonds because the debt crisis makes securities from the other 16 euro nations too risky, said Rose Ouahba, head of the fund’s fixed-income team.

Retail sales in the 17-nation euro region dropped 1.1 percent in May from the previous month, the European Union’s statistics office said today. That’s the biggest decline since April 2010 and greater than the 1 percent fall projected by the median of 22 estimates in a Bloomberg News survey showed.

The services and manufacturing index based on a survey of euro-area purchasing managers fell to 53.3 from 55.8 in May, London-based Markit Economics said today. Markit had initially reported a drop to 53.6. A reading above 50 indicates growth.

Lawmaker Pressure

Austria sold 1.65 billion euros of bonds due in 2013 and 2022 today, while Belgium’s borrowing costs for three-month and six-month treasury bills rose to the highest level in 2 1/2 years in separate auctions today.

European Parliament lawmakers called today for restrictions on traders’ use of credit derivatives to profit from defaults on sovereign debt they don’t own. The assembly also voted in favor of a ban on short-selling government bonds unless traders have at least “located and reserved” in advance the securities they intend to sell.

German government bonds handed investors a 0.03 percent loss this year, compared with a gain of 2.3 percent for U.S. Treasuries and 1.9 percent for U.K. gilts, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds have lost 15 percent, the indexes show.

--Editors: Keith Campbell, Michael Shanahan.

To contact the reporters on this story: Emma Charlton in London at; Paul Dobson in London at

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

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