Bloomberg News

Irish Debt Leads Declines for Euro-Area Bonds on Banks, Recovery

October 11, 2011

Oct. 11 (Bloomberg) -- Irish bonds fell, leading declines in the debt of Europe’s high-deficit nations, amid speculation weaker economic expansion and vulnerable banks in the region may hamper a resolution of the debt crisis.

Ten-year Irish yields rose the most since July 6 as credit- rating company DBRS Inc. said slower growth in the U.S. and Europe will probably damage Ireland’s prospects for recovery. Italian securities fell before the nation sells bonds maturing between 2016 and 2025 later this week. German bonds were little changed before Slovakian lawmakers vote on the retooled euro- area bailout. Greek notes gained on optimism the country will get its next aid payout.

“Ireland has been the star performer in the European government bond space over the past months,” said Norbert Aul, a European interest-rate strategist at RBC Capital Markets in London. “Negative news flow, for instance from rating agencies and around the pending Slovak vote, could have caused a correction. For Italy, the upcoming supply has been weighing on the five- and 10-year sectors.”

The yield on 10-year Irish bonds was 47 basis points higher at 8.21 percent as of 4:42 p.m. London time. It earlier rose 73 basis points, the most since July 6. Italian 10-year yields advanced six basis points to 5.63 percent, Portuguese rates for similar-maturity bonds climbed 13 basis points to 11.55 percent and Belgian yields were 10 basis points higher at 4.17 percent.

Bank Funding

The 10-year bund yielded 2.09 percent, after rising to 2.10 percent, the highest level since Sept. 2. The 2.25 percent security due September 2021 was little changed at 101.45.

Ireland may face a delay in stabilizing its debt load amid international growth, according to DBRS, which has an A (Low) rating on Ireland with a “negative” trend.

Euro-area officials are debating ways to calm the debt crisis, including measures to help boost bank funding in the region, with European Central Bank President Jean-Claude Trichet saying today the debt crisis is threatening the region’s financial system. European Commission President Jose Barroso said he plans to present proposals tomorrow on issues including the recapitalization of European banks.

The region is close to clinching a revamping of its European Financial Stability Facility bailout fund, with Slovakia likely to approve the plan after a political storm likely to topple Prime Minister Iveta Radicova’s governing coalition. The largest opposition party, which pledged to reject the motion today, will back the revamped EFSF in a second vote, should lawmakers fail to approve it at the initial vote, said leader Robert Fico.

Slovakia Vote

Slovakia is the only country in the euro area that hasn’t ratified the measure, following approval in Malta yesterday.

“Everybody’s waiting on the vote in Slovakia,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “Because of the insecurity about the debt crisis and of course the possible no vote from Slovakia, bunds should trade slightly higher.”

Greek two-year notes reversed an earlier decline after officials said the country is likely to get an 8 billion-euro loan payment next month under its 110 billion-euro bailout agreed in April last year. They said the nation still needs to implement more spending cuts to meet its 2013 and 2014 targets.

The two-year yield fell 20 basis points to 73.20 percent after earlier rising to 77.15 percent. The securities traded at 39.56 percent of face value.

Bond Auctions

Greek 10-year bonds pared an intraday drop, leaving the yield 13 basis points higher at 24.04 percent.

Greece sold 1.3 billion euros of 26-week Treasury bills today, exceeding its target amount of 1 billion euros, at a yield of 4.86 percent, according to the country’s Public Debt Management Agency. Investors bid for 2.73 times the securities offered, the agency said.

Italy sold 9.5 billion euros of bills today, the maximum set for the auction. Italian 10-year yields increased six basis points to 5.63 percent. The nation will sell up to 6.5 billion euros of bonds on Oct. 13.

German bunds have returned 6.6 percent this year, while U.S. Treasuries have gained 8.3 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds have lost 41 percent.

--With assistance from Radoslav Tomek in Bratislava, Lukanyo Mnyanda in Edinburgh and Joe Brennan in Dublin. Editors: Matthew Brown, Mark McCord

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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


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