Bloomberg News

German Bunds Fall for Third Day as Papandreou Scraps Referendum

November 05, 2011

Nov. 4 (Bloomberg) -- German 10-year bonds fell for a third day after Greece scrapped a referendum on its bailout, moving the country closer to receiving aid as Prime Minister George Papandreou prepares to face a confidence vote.

German notes were little changed as Markit Economics revised down its index of euro-area services and manufacturing output for October and before a separate report economists said will show European producer-price inflation slowed in September. Italy’s notes slipped amid speculation international auditors may monitor its budget-cutting efforts.

“When it comes down to it, this referendum idea has been a good thing because it has speeded up the debate,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “There doesn’t seem to be any evidence from the opposition party or even the ruling party in favor of pulling out of the euro or anything silly like that.”

German 10-year yields were two basis points higher at 1.94 percent at 9:40 a.m. London time. The 2.25 percent security due September 2021 slipped 0.205, or 2.05 euros per 1,000-euro ($1,383) face amount, to 102.785.

Papandreou scrapped the plebiscite to avert a split in his party before the confidence vote today, after European leaders said the move may determine the nation’s membership in the currency union and will threaten aid payments.

Italian Credit

The Group of 20 economies, whose leaders are gathered in Cannes, France, is considering three options to increase the resources of the International Monetary Fund, a European Union official said.

The proposals include increasing the lender’s special drawing rights or setting up a trust fund, the official said on condition they not be named. The boost in resources will not be earmarked for tackling the euro-area debt crisis, the official said.

Italy doesn’t want to use a credit line from the IMF, news agency Ansa reported after government officials met fund representatives.

The yield on two-year Italian notes increased four basis points to 5.26 percent.

Royal Bank of Scotland Group Plc has written down the value of its Greek sovereign holdings to 37 cents on the euro, Chief Financial Officer Bruce Van Saun said in a Bloomberg Television interview today. The bank reduced its “total exposures to central and local governments in Portugal, Greece, Italy, Spain and the Republic of Ireland” in the third quarter to 1.1 billion pounds ($1.8 billion) from 4.6 billion pounds, it said today in a statement.

Bunds have handed investors a return of 7.7 percent this year, underperforming Treasuries, which have gained 8.7 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

--Editors: Mark McCord, Nicholas Reynolds

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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