Bloomberg News

Spanish Bonds Drop Before Greek Talks as ECB Keeps Rate at 1%

February 09, 2012

Feb. 9 (Bloomberg) -- Spanish bonds fell, with 10-year debt dropping for a sixth day, as Greek Finance Minister Evangelos Venizelos said there were still doubts on the agreement needed for a 130 billion-euro ($172.3 billion) aid package.

German two-year notes rose as the European Central Bank kept its refinancing rate at a record-low 1 percent, matching the median estimate of economists in a Bloomberg News survey. Venizelos will meet euro-area finance ministers later, with Greece facing a 14.5 billion-euro bond payment on March 20. Spain sold an additional 4 billion euros of benchmark 10-year bonds through banks yesterday.

Spanish bonds “are falling as there are still quite a lot of outstanding bits and pieces to be agreed on the Greek deal,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “There are still implementation risks, and concern whether they’ll meet their March 20 deadline.”

Spain’s 10-year yield rose five basis points, or 0.05 percentage point, to 5.27 percent at 1:09 p.m. London time. The 5.85 percent bond due in January 2022 fell 0.41, or 4.10 euros per 1,000-euro face amount, to 104.370.

Greece has “issues outstanding that must be resolved by the time the eurogroup meets,” Venizelos told reporters in Athens after a meeting with Prime Minister Lucas Papademos and officials from the European Union and International Monetary Fund that ended just before 6 a.m. local time.

Disagreements

Discussions between Papademos and leaders of the three parties supporting his government failed to resolve a dispute over pension cuts, Panos Beglitis, a spokesman for the Pasok socialist party, told reporters after the meeting.

Disagreements in Athens threaten to hold up a debt swap that will trim 100 billion euros off the nation’s more than 200 billion euros of privately held debt. Euro-area finance ministers will convene in Brussels at 6 p.m. today. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the meetings, announced the gathering in an e-mailed statement yesterday.

Spain sold the additional 10-year bonds at a yield 300 basis points more than the swap rate. The notes take the total size of the benchmark issue to 11.3 billion euros, data compiled by Bloomberg show.

Italy’s 10-year bond yield rose two basis points to 5.61 percent, leaving the extra yield investors demand to hold the securities instead of German bunds three basis points wider at 3.63 percentage points.

Euribor Slides

Spanish and Italian bonds rallied after the ECB offered unlimited three-year cash to the region’s banks in December to avoid a credit crunch. The central bank will offer a second round of the loans on Feb. 28, with allotment a day later. President Mario Draghi will hold a press conference at 2:30 p.m. in Frankfurt to explain today’s interest-rate decision.

The Bank of England said today it will add 50 billion pounds ($79.3 billion) to its bond-purchase program, taking the size of its asset purchases to 325 billion pounds. It left its benchmark interest rate at 0.5 percent.

The German two-year note yield fell two basis points to 0.23 percent. The 10-year bond rate was little changed at 1.97 percent, after rising to 2.006 percent yesterday, the highest level since Jan. 25.

The rate at which European banks say they see each other lending in euros for three months dropped for a 36th day, the longest run of declines in 2 1/2 years, as record borrowing at the central bank’s three-year tender eased funding costs.

The euro interbank offered rate, or Euribor, for such loans dropped 0.7 basis point, or 0.007 percentage point, to 1.07 percent, according to data from the European Banking Federation. That’s the longest run of losses since August 2009, and is the lowest rate since January 2011, according to data compiled by Bloomberg.

The rate has fallen every day since the ECB allotted 489 billion euros to 523 banks on Dec. 21.

Germany’s bonds have handed investors 11 percent in the past 12 months, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, as investors sought a haven from the European debt crisis. Greek debt tumbled 64 percent, the indexes show.

--Editor: Mark McCord

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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