Bloomberg News

German Bunds Drop After Greek Austerity Vote; Spanish Bonds Rise

February 14, 2012

Feb. 13 (Bloomberg) -- German bunds fell, pushing two-year yields to the highest in two months, after Greek lawmakers approved spending cuts demanded by European finance chiefs, damping demand for safer assets.

Spanish 10-year bonds gained and Portuguese yields dropped to an 11-week low as the Greek vote reduced the risk of contagion to the region’s most-indebted nations. Euro-area finance ministers plan to meet in two days to decide on a second financial aid package for Greece. France, Germany and Italy sold bills today.

Bunds “are drawing back a bit,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “It is a better sentiment for peripherals on the back of the Greek parliamentary vote yesterday. This is still a very troublesome issue and at this point now I would still not say we are out of the woods yet.”

The 10-year bund yield rose two basis points, or 0.02 percentage point, to 1.93 percent at 5 p.m. in London. The 2 percent bond due in January 2022 fell 0.215, or 2.15 euros per 1,000-euro ($1,320) face amount, to 100.61. The two-year yield climbed two basis point to 0.26 percent after reaching 0.28 percent, the highest since Dec. 15.

A total of 199 Greek lawmakers voted in favor of the austerity measures and 74 against, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV. Passage of the bill puts the spotlight on the meeting of euro- region finance ministers on Feb. 15 that must decide whether to approve the second aid package.

Italian Bonds

Spanish 10-year rates dropped four basis points to 5.26 percent, reducing the additional yield investors demand to hold the securities instead of German debt by six basis points to 3.33 percentage points. Italian 10-year yields fell one basis point to 5.6 percent.

“We’re seeing a bit of a logical reaction to at least the slightly less risk, in the sense that the Greek parliament has now approved the measures,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht. “We’ve had quite a big rally in Italian and Spanish bonds so the question there is how much further can we see those spreads fall.”

The Stoxx Europe 600 Index of shares rose 0.7 percent amid renewed confidence in Greece’s ability to avoid economic collapse. European finance ministers ended a meeting last week with Luxembourg’s Jean-Claude Juncker saying aid wouldn’t be forthcoming unless Greece turned budget cuts into law, provided further details on 325 million euros in planned reductions and had major party leaders sign up to the program so they don’t retreat after elections.

‘Will Be Saved’

Greece “will be saved in one way or another,” German Finance Minister Wolfgang Schaeuble told newspaper Welt am Sonntag yesterday.

Portuguese 10-year bond yields dropped 56 basis points to 11.93 percent, after dropping to 11.90 percent, the lowest level since Nov. 24.

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

German sold 3.01 billion euros of six-month bills at an average yield of 0.0761 percent, compared with minus 0.0122 percent at a sale on Jan. 9. The auction attracted bids for 1.51 times the securities allocated to investors, versus 1.82 times last month.

Italian Notes

Italian borrowing costs fell at an auction of 12 billion euros of bills. The Treasury sold 8.5 billion euros of 365-day debt at an average yield of 2.23 percent, down from 2.735 percent at the previous auction on Jan. 12. The Treasury also sold 3.5 billion euros of 127-day bills. The nation is scheduled to auction 2014, 2015 and 2017 bonds tomorrow.

France sold 8.7 billion euros of 84-, 175- and 357-day debt. It plans to auction notes and inflation-linked bonds on Feb. 16.

Swedish debt was the fourth-most volatile of European securities. The nation is preparing to sell 1.5 billion euros of three-year bonds via banks, according to a banker with knowledge of the transaction. The move in the Swedish two- and 10-year spread was 2.7 times the 90-day average change.

German bunds have handed investors a loss of 0.5 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 8.4 percent, and Spanish debt rose 1 percent.

--Editors: Paul Dobson, Nicholas Reynolds

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

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


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