Bloomberg News

German Bunds Advance as Merkel Says Greece Running Out of Time

February 07, 2012

Feb. 6 (Bloomberg) -- Germany’s bonds rose, with 10-year yields falling the most in three weeks, as Chancellor Angela Merkel said Greece is running out of time to reach an agreement with international lenders to obtain another bailout.

Ten-year bunds advanced for the first time in four days as a gathering of Greek political leaders was delayed until tomorrow as they struggled for a unified response to the demands of the European Commission, International Monetary Fund and European Central Bank. Dutch notes also rallied as investors sought safer assets. French two-year yields reached a record low as the country auctioned bills.

“The Greek deadline is looming over the markets and the uncertainty helps underpin demand for bunds,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “No one is convinced yet that an agreement will go through.”

The German 10-year yield fell four basis points, or 0.04 percentage point, to 1.89 percent at 4:28 p.m. London time after dropping as much as eight basis points, the most since Jan. 13. The 2 percent bond due January 2022 climbed 0.35, or 3.50 euros per 1,000-euro ($1,311) face amount, to 100.945.

Greece’s stability has been at stake as efforts to win a second bailout from the so-called troika -- the European Commission, the ECB and IMF -- hung in the balance. The country has a 14.5 billion-euro bond payment due on March 20.

“I can’t quite understand why we need a few more days -- time is running out,” Merkel said today in a joint briefing with French President Nicolas Sarkozy in Paris.

‘Going Wrong’

Euro-area finance chiefs told Greek Finance Minister Evangelos Venizelos in a Feb. 4 conference call that an increase in the bailout package wasn’t forthcoming, underscoring their frustration at a lack of progress on fixing the economy.

“If we determine that it’s all going wrong in Greece, then there won’t be a new program -- and that means in March you’ll have a declaration of bankruptcy,” Luxembourg’s Jean- Claude Juncker, who chairs euro-region finance meetings, told Der Spiegel magazine in an interview published yesterday.

German bonds have gained 11 percent in the past year as the European debt crisis worsened, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Dutch bonds also gained 11 percent, while Greek securities tumbled 64 percent, the indexes show.

Dutch Notes

Dutch bonds advanced as the nation auctioned 2.2 billion euros of bills.

The nation sold 1.1 billion euros of 79-day securities at a yield of 0.032 percent and 1.09 billion euros of 174-day bills at 0.05 percent. The rates were higher than previous auctions of similar-maturity securities on Jan. 3 and Dec. 5 respectively, which were sold at zero percent and 0.002 percent.

“We are continuing to see a safe-haven bid and that’s supporting the bonds of the AAA countries” such as the Netherlands, said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht. “Greece is a clear example of the complexity of the issues facing Europe.”

The Dutch 10-year yield dropped four basis points to 2.21 percent after declining to a euro-era record 2.02 percent on Jan. 16.

The Netherlands is scheduled to sell as much as 5 billion euros of 10-year bonds tomorrow. Germany will auction five-year notes the following day.

French two-year yields fell to 0.569 percent, the lowest since Bloomberg started tracking the data in 1990, before being little changed at 0.6 percent.

Greek Bonds

Greek 10-year bonds advanced for a second day with the yield declining 19 basis points to 34 percent. The price rose 0.15 to 20.79 percent of face value. The nation’s two-year note yield climbed 12.4 percentage points to 196.9 percent.

Greece plans to sell 625 million euros of six-month bills tomorrow.

Volatility on Greek debt was the highest in euro-area markets today, followed by Finland, according to measures of 10- year bonds, two- and 10-year spreads and credit-default swaps.

--With assistance from Emma Charlton in London, Natalie Weeks and Maria Petrakis in Athens. Editors: Nicholas Reynolds, Paul Dobson

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

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


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