Bloomberg News

Bunds Gain on Concern Greek Aid to Be Delayed; Spain Bonds Fall

February 15, 2012

Feb. 15 (Bloomberg) -- German bonds rose for a second day, outperforming their European peers, as speculation Greece is struggling to win a new bailout from international lenders boosted demand for the region’s safest securities.

Two-year German yields dropped to the lowest level in a week after Reuters reported a second aid package for Greece may be delayed until after elections in April, citing European Union sources. Spanish and Italian bonds dropped on concern the turmoil in Greece will spread to the region’s larger economies. Portuguese notes gained after the nation’s borrowing costs declined at bill sales today.

Bunds are rising as a “reaction to delays over the second bailout” for Greece, said Brian Barry, an analyst at Investec Bank Plc in London. “The prospect of a disorderly default is becoming more real, with the possible implication that Greece may be the first member state to leave the euro zone, which is by definition venturing into unknown territory.”

The German 10-year yield fell four basis points, or 0.04 percentage point, to 1.86 percent at 4:07 p.m. London time. The 2 percent bond due in January 2022 gained 0.295, or 2.95 euros per 1,000-euro ($1,308) face amount, to 101.165.

The two-year yield dropped three basis points to 0.22 percent after falling to 0.21 percent, the lowest since Feb. 7.

‘Playing With Fire’

Europe’s wealthier nations are “playing with fire” by considering the idea of expelling Greece from the euro area, the country’s Finance Minister Evangelos Venizelos told reporters today in Athens. He leveled the accusation after a decision slated for today on aid totaling 130 billion euros was postponed until Feb. 20 at the earliest.

“There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they’ve held elections.” Reuters cited an EU official briefed on a planned European finance ministers’ teleconference as saying.

Spanish 10-year yields climbed 15 basis points to 5.43 percent, increasing the spread over similar-maturity German bunds by 19 basis points to 358 basis points. Italian 10-year yields gained 16 basis points to 5.73 percent.

The cost of insuring European sovereign debt rose for a sixth day on concern delays to Greece’s bailout are increasing the chance of default. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbed 12 basis points to a four-week high of 344. An increase signals deterioration in perceptions of credit quality.

Portugal Sale

Portugal’s government debt agency sold bills maturing in 91-, 182-days and 371-days. The 12-month debt was the longest maturity offered since the country requested a bailout from the European Union and the International Monetary Fund in April last year. The securities were issued at an average yield of 4.943 percent, compared with 5.902 percent when it last auctioned 12- month debt on April 6.

Portugal’s five-year yields fell 13 basis points to 14.83 percent. Ten-year yields were little changed at 12.05 percent.

German bunds have returned 12 percent over the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds tumbled 64 percent and Portuguese securities slid 16 percent.

--Editors: Nicholas Reynolds, Paul Dobson

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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


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