Bloomberg News

Greek Bonds Fall as EU Plans Further Talks; German Notes Rise

September 21, 2011

Sept. 21 (Bloomberg) -- Greek government bonds fell for a third day as the European Union said officials will return to Athens next week after three days of telephone consultations failed to produce a solution to the country’s debt crisis.

Yields on German two-year notes, perceived to be among Europe’s safest securities, dropped toward a record low as Greece’s biggest private and public sector union groups called strikes against austerity measures. Ten-year bunds were little changed after Germany sold the securities at an average yield below 2 percent for the first time. Portuguese notes fell as borrowing costs increased at a bill sale.

“There’s no incentive at the moment to jump back into riskier assets” and sell German securities, said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “The threat over the next couple of months is going to be for continued risk off, and core paper will have its buyers into any weakness.”

The Greek two-year yield climbed 233 basis points to 66.51 percent at 4:30 p.m. in London. The 4 percent security due August 2013 fell 0.960, or 9.60 euros per 1,000-euro ($1,370) face amount, to 41.620. The 10-year yield rose 31 basis points to 23.55 percent.

German two-year rates dropped two basis points to 0.44 percent, approaching the record low 0.359 percent set Sept. 12. The 10-year yield fell two basis points to 1.77 percent.

Cabinet Meeting

Prime Minister George Papandreou convened a cabinet meeting today to discuss the content of the talks with the EU, European Central Bank and International Monetary Fund. The EU said in a statement that the consultations with Finance Minister Evangelos Venizelos had made “good progress.”

The 24-hour strikes by Greece’s biggest private- and public-sector union groups are scheduled for Oct. 5 and Oct. 19, Athens-based ADEDY’s Chairman Costas Tsikrikas said. ADEDY is also holding a three-hour walkout tomorrow to support state- school teachers.

Europe’s debt crisis has generated as much as 300 billion euros in credit risk for European banks, the International Monetary Fund said. Political squabbling and delays in implementing agreed measures are raising concerns about the risk of defaults by governments, the IMF said in its Global Financial Stability Report released today.

“Investors are trying to understand what’s going to happen next, which is also likely keeping trading volumes subdued,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit Global Research in Milan. “There’s still a lot of uncertainty around and nobody really knows how this situation will develop. There’s a lot of nervousness around.”

Debt Auctions

Germany sold 4.2 billion euros of 2.25 percent bonds due in 2021, attracting bids for 1.51 times the amount on offer, up from a bid-to-cover ratio of 1.4 times on Aug. 24. The securities were priced to yield an average 1.8 percent, down from 2.15 percent last month.

Portugal’s two-year yield advanced 15 basis points to 17.48 percent after the nation sold 250 million euros of six-month bills.

The government issued the debt at an average yield of 5.249 percent, up from 4.989 percent at a previous auction on Aug. 17. The sale attracted bids for 4.5 times the amount offered, the debt management agency said, compared with a ratio of 7.2 times last month.

Italian notes dropped for a third day after Standard & Poor’s cut the country’s credit rating yesterday for the first time in five years. Two-year yields increased three basis points to 4.32 percent.

Italian Sale

Italy’s debt agency today sold 4.5 percent notes due March 2019 in an exchange for securities maturing in 2012 and 2017.

Norwegian 10-year bonds declined, pushing the yield up by seven basis points to 2.39 percent, after the central bank kept benchmark interest rates unchanged for a third consecutive meeting. Volatility on the securities was 1.5 times more than the 90-day average, the most among 22 developed markets tracked by Bloomberg.

Bunds have returned 2.8 percent this month, extending this year’s gain to 8.1 percent, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Greek bonds have fallen 40 percent.

--With assistance from Natalie Weeks in Athens. Editors: Matthew Brown, Mark McCord

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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