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Italian, French Bonds Fall as Optimism Over Greece Deal Wanes

January 24, 2012

Jan. 24 (Bloomberg) -- Italian and French bonds declined as optimism waned that Greece and its creditors will agree a debt- swap deal.

Portuguese and Irish bonds also declined after Luxembourg Prime Minister Jean-Claude Juncker said the program was “off track.” The German 10-year yield climbed to a four-week high as a report showed euro-region manufacturing and services industries unexpectedly expanded this month.

“The latest news from Greece seems to be somewhat less positive,” said John Davies, a fixed-income strategist at WestLB AG in London. “We’d had a decent run down in peripheral spreads and now we’re seeing some of that optimism fade.”

Italy’s 10-year yield rose five basis points, or 0.05 percentage point, to 6.16 percent at 4:27 p.m. London time. The 5 percent bond due March 2022 dropped 0.345, or 3.45 euros per 1,000-euro ($1,302) face amount, to 92.04.

The spread over equivalent-maturity German debt increased two basis points to 415 basis points. French 10-year yields climbed three basis points to 3.17 percent, leaving the spread over bunds little changed at 117 basis points.

Germany’s 10-year bund yield climbed three basis point to 2 percent, the highest since Dec. 21.

Charles Dallara, managing director of the Institute of International Finance who is negotiating with Greece on behalf of private bondholders, said he’s hopeful of finding “common ground” on the Greek plan as European finance ministers pushed for greater concessions from the country’s private creditors.

Negotiation Deadline

The accord is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20. Greek Finance Minister Evangelos Venizelos said the government intends to wrap up negotiations with private investors by Feb. 1. New pledges sought by the euro area to pursue budget-austerity and economic-overhaul policies should be made by Jan. 30, he told reporters today in Brussels.

The yield on the benchmark Greek note due October 2022 slipped 20 basis points to 33.36 percent. That pushed the price up to 21.27 percent of face value.

Volatility on Portuguese debt was the highest in euro-area markets today followed by Greece, according to measures of 10- year bonds, 2-10-year yield spreads and credit-default swaps. The 10-year yield slid 25 basis points to 14.19 percent, 1.7 times the 90-day average.

Dutch 30-year bonds fell for a seventh day, pushing the yield up four basis points to 2.72 percent, after the Netherlands sold 1.84 billion euros of bonds due in 2013 and 2042.

‘Window of Opportunity’

Spanish two-year notes advanced after demand rose at a sale of 2.51 billion euros of three- and six-month bills that met its maximum target. The yield fell six basis points to 3.11 percent.

Spanish borrowing costs have fallen at auctions since the European Central Bank issued 489 billion euros in unlimited three-year loans to euro-region banks on Dec. 21 through a long- term refinancing operation.

“The ECB’s three-year LTRO has created a window of opportunity at the shorter end of the curve, and Spain is making use of it remarkably well,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London wrote in an e-mailed research note. “Today’s auction is a perfect illustration of how the funding environment has changed markedly over the past month or so.”

Bund yields earlier climbed to a four-week high after a euro-area composite index based on a survey of purchasing managers in the services and manufacturing industries jumped to 50.4 from 48.3 in December, according to initial estimates. Economists surveyed by Bloomberg forecast a reading of 48.5. A number below 50 indicates contraction.

Confidence Rebound

ECB Executive Board member Jose Manuel Gonzalez-Paramo said there are signs that investor confidence in the euro-area economy is returning and growth may be about to rebound.

There are good indications coming “from the real economy suggesting the slowdown is just temporary,” while the ECB’s three year loans are providing comfort to the banking system, he said at the Bloomberg Sovereign Debt Crisis Conference in New York today.

Bunds have handed investors a 0.9 percent loss this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French government bonds have slipped 0.1 percent and Greek debt lost 0.2 percent, the indexes show.

--Editor: Matthew Brown

To contact the reporters on this story: Lucy Meakin in London at; To contact the reporter on this story: Paul Dobson in London at

To contact the editor responsible for this story: Daniel Tilles at

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