Bloomberg News

Greek Yields, CDS at Records on Debt Concern; Italy Notes Slide

September 06, 2011

Sept. 6 (Bloomberg) -- Greece’s two- and 10-year yields rose to records on speculation the nation’s deepening recession may make a second international bailout agreement redundant even before it’s implemented.

German two- and 10-year yields dropped to all-time lows as equities fell. The yield difference, or spread, between Greek 10-year bonds and German bunds widened to the most since at least 1998, and the cost of insuring against default on Greek sovereign debt surged to a record. Italian two-year yields rose to the highest level in a month as workers held a general strike. Spanish 10-year bonds rose for the time in eight days as the European Central Bank bought the nation’s debt.

“The consensus seems to be that the second bailout package for Greece might be obsolete before it has been put into law, which is obviously detrimental for sentiment,” said Michael Leister, a fixed-income strategist at WestLB AG in London. “The ECB is having a hard time stabilizing these markets. The pressure is rising.”

Greece’s 10-year yield climbed 50 basis points to 19.81 percent at 4:51 p.m. in London. The 6.25 percent security due June 2020, fell 1.155, or 11.55 euros per 1,000-euro ($1,400) face amount, to 45.47. Two-year note yields added 283 basis points, or 2.83 percentage points, to 53.20 percent.

The yield spread between Greek 10-year securities and similar-maturity German bunds widened as much as 50 basis points to a euro-era record 1,796 basis points.

Greek Sale

Credit-default swaps on Greece climbed 109 basis points to 2,659, according to CMA.

The Greek Public Debt Management Agency said it sold 1.3 billion euros of six-month bills at an average yield of 4.80 percent. Investors bid for 3.02 times the amount of securities on offer, compared with a bid-to-cover ratio of 3.06 times at the previous sale of similar-maturity debt held Aug. 9, which was sold at 4.85 percent.

German Chancellor Angela Merkel told members of her Christian Democrat party that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said.

Greece’s economic woes, wavering commitment to budget cuts in Italy and mounting borrowing costs for European banks underscore investor concern that efforts by euro-area officials to contain the debt crisis are unraveling.

Greece ‘Unclear’

Commerzbank AG Chief Executive Officer Martin Blessing said it remains “unclear” whether Greece will manage to bring its debt down to a sustainable level “in our lifetime.”

Blessing cited a model estimating the potential for European countries to reduce their debt to below 60 percent of gross domestic product by 2030. It is possible for countries to consolidate their debt over time, he said at a conference in Frankfurt today.

Spanish 10-year bonds rose as the ECB bought the nation’s securities. The central bank bought the nation’s securities according to three people with knowledge of the transactions, who declined to be identified because the deals are confidential. A spokesman for the Frankfurt-based ECB declined to comment.

Spain’s 10-year bond yield fell eight basis points to 5.18 percent. The two-year note yield slipped three basis points to 3.66 percent.

Italian Protest

The ECB began buying Spanish and Italian government debt last month to curtail a surge in bond yields as contagion from the debt crisis that engulfed Greece, Ireland and Portugal infected the euro region’s third- and fourth-largest economies.

Italian 10-year bonds snapped an 11-day drop, the longest run of declines since the introduction of the euro in 1999. Ten- year yields slid six basis points to 5.49 percent after climbing as much as nine basis points to 5.65 percent, the most since Aug. 8 when the ECB began buying the bonds. Italian two-year note yields rose 12 basis points to 4.22 percent after climbing to 4.30 percent, the most since Aug. 5.

Italian bonds slid yesterday amid concern Prime Minister Silvio Berlusconi’s government will backslide on its 45.5 billion-euro austerity package, which convinced the ECB to buy Italian bonds. Workers protested against the plan today in a strike organized by Italy’s biggest union, CGIL.

Portuguese two-year notes fell for a third day, pushing the yield on the securities up 77 basis points to 14.48 percent, after touching 14.62 percent, the highest level since Aug. 4. The nation’s 10-year bond yield reached 10.87 percent, the most since Aug. 30.

Slowing Growth

The yield difference between Belgian 10-year bonds and similar-maturity German bunds widened as much as eight basis points to 233 basis points. That’s the widest since the euro’s debut in 1999, according to data compiled by Bloomberg.

Ten-year German bund yields were little changed at 1.84 percent, after dropping to a record 1.824 percent. Two-year note yields were one basis point higher at 0.44 percent after reaching an all-time low of 0.417 percent.

German 10-year yields have dropped about 50 basis points in the past month as a rout in shares around the world increased demand for the nation’s debt.

German 10-year bond futures rose to an all-time high, with the contract expiring in September gaining as much as 0.4 percent to 138.86.

The benchmark Stoxx Europe 600 Index fell for a third- straight day, losing 0.7 percent.

A report affirmed growth in the 17-nation euro area slowed last quarter. Euro-region gross domestic product expanded 0.2 percent in the second quarter, in line with an Aug. 16 estimate, after expanding 0.8 percent in the previous three months, the European Union’s statistics office said today.

German government bonds have returned 7.4 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries gained 8.3 percent. Italian debt lost 2.7 percent, Spanish bonds returned 3.9 percent and Greek bonds lost 27 percent, the indexes show.

--With assistance from Abigail Moses and Anchalee Worrachate in London. Editors: Mark McCord, Daniel Tilles

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; 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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