Bloomberg News

Greek, Irish Bonds Rise as German Lawmakers Back Fund Expansion

September 29, 2011

Sept. 29 (Bloomberg) -- Greek government bonds rose for a third day, leading gains by securities of Europe’s most indebted countries, as German lawmakers backed an expansion of the euro- area rescue fund.

Irish and Belgian debt also advanced as Germany’s lower house of parliament passed the measure granting the fund powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. German 10-year bunds snapped a four-day drop after a report showed confidence in Europe’s economic outlook fell more than analysts forecast.

“Investors are now looking at putting risk on rather than taking it off,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc, speaking in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua. “People are looking at the short end once again.”

Greece’s two-year yield fell 453 basis points to 65.24 percent at 5 p.m. in London, down from a euro-era record 84.52 percent on Sept. 14. The 4 percent note due August 2013 gained 2.115, or 21.15 euros per 1,000-euro ($1,364) face amount, to 42.605. Ten-year rates slid 37 basis points to 22.68 percent.

Irish two-year yields declined 54 basis points to 7.04 percent, and Belgium’s two-year rates fell for a seventh day, dropping 11 basis points to 1.85 percent.

“We’ve seen some buying of Belgium right across the curve,” said Padhraic Garvey, head of developed debt-market strategy at ING Groep NV in Amsterdam. “There is a fantastic spread obtainable on the front end of Belgium versus Germany. We think it’s a pretty safe bet.”

German Lawmakers

Lawmakers in the Bundestag voted 523 in favor of the legislation, while 85 voted against and three abstained. It is now set to be debated and put to a non-binding vote in the upper house tomorrow. German Chancellor Angela Merkel, head of Europe’s largest economy and the biggest country contributor to bailouts for Greece, Ireland and Portugal, spent weeks convincing dissenters in her coalition to back the July 21 accord by euro-area leaders to expand the fund.

German 10-year bunds halted a four-day loss after the European Commission said its index of executive and consumer sentiment in the region dropped to 95 this month from a revised 98.4 in August. That’s the lowest since December 2009.

The 10-year bund yield was little changed at 2.01 percent, after rising to 2.02 percent yesterday, the most since Sept. 2.

Market Uncertainty

“There’s still a lot of uncertainty in the market, especially on the political side,” said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group AG in Zurich.

Bunds erased earlier gains after U.S. government reports showed jobless claims fell more than analysts forecast and gross-domestic product grew more than earlier estimated, easing concern the world’s largest economy is slowing.

German bonds have rallied this month as reports signaled the region’s economy may be slipping back into a recession. Bunds have gained 1.6 percent in September, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg.

Global investors anticipate that Europe’s debt crisis will lead to an economic slump and social unrest in the next year with 72 percent predicting a country abandoning the euro within five years, according to a Bloomberg survey. About three- quarters of those questioned said the euro-area economy will fall into recession in the next 12 months, according to the quarterly Global Poll.

Italian Bonds

Italian bonds rose after the country sold 7.9 billion euros of securities, less than the maximum target.

The Treasury auctioned 3.14 billion euros of notes due in 2014 to yield 4.68 percent, compared with 3.8 percent at the previous sale on Aug. 30. Demand climbed to 1.36 times the amount sold from a bid-to-cover ratio of 1.32 in August. Italy also auctioned securities due in 2015, 2021 and 2022.

The 10-year bond yield fell seven basis points to 5.58 percent, while the two-year rate dropped nine basis points to 4.28 percent.

Sweden’s bonds advanced after the debt office said it would be able to sustain a larger-than-needed bond market to keep up liquidity for the nation’s debt as its borrowing levels shrink. The 10-year yield fell eight basis points to 1.84 percent.

Volatility on Sweden’s sovereign debt was the highest among developed-country markets today, according to measures of 10-year bonds, two-10-year spreads and credit-default swaps. The yield change in the nation’s 10-year bonds was 1.8 times the 90- day average, the Bloomberg gauge showed. Sweden isn’t part of the euro area.

--With assistance from Simone Meier in Zurich and Simon Kennedy in London. Editors: Nicholas Reynolds, Mark McCord

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

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


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