Bloomberg News

Bunds Fall 3rd Day Amid Greece Aid Optimism; Italian Bonds Gain

February 21, 2012

Feb. 20 (Bloomberg) -- German bunds fell for a third day on speculation European finance ministers meeting today will reach agreement on a 130 billion-euro ($172 billion) aid package for Greece, reducing demand for the region’s safest securities.

Spain’s 10-year bonds advanced, driving the additional yield investors demand to hold them instead of bunds to a 10-day low as European officials signaled progress was being made on Greece’s second international bailout. Italy’s 10-year bond yield fell to a four-month low after a report showed industrial orders increased more than economists forecast. The Netherlands and France auctioned bills.

“It seems the market is now expecting a positive outcome from today’s euro zone finance ministers meeting,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht. “The immediate impact on bunds is negative, because there is less headline risk so it reduces safe-haven demand.”

The German 10-year yield climbed four basis points, or 0.04 percentage point, to 1.96 percent at 4:14 p.m. London time. The 2 percent bond due in January 2022 dropped 0.350, or 3.50 euros per 1,000-euro face amount, to 100.315.

German Finance Minister Wolfgang Schaeuble told reporters today that he is confident euro-area governments will settle the final details of the second aid program for Greece. The Mediterranean nation accepts the idea of paying the aid funds into a special account that will give creditor countries more control over how the money is spent, he said.

Consensus Forged

A consensus appears to have been forged on reducing interest rates for loans granted to Greece and the treatment of bonds held by national central banks, said a Greek finance ministry official, who declined to be named. The meeting of European Union finance ministers was due to start at 3:30 p.m. in Brussels.

“The market is expecting it to go well and that is putting a bit of a downside on the bund market,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich.

Italian industrial orders jumped 5.5 percent in December, after rising a revised 0.2 percent a month earlier, the statistics institute said today. Economists predicted a gain of 0.4 percent, a Bloomberg survey showed. Italy’s 10-year bond yield slid 10 basis points to 5.48 percent after earlier reaching 5.44 percent, the lowest since Oct. 6.

Bunds Underperforming

The bonds of most of Europe’s lower-rated nations are outperforming German bunds as investors bet the crisis will be contained, Steven Major, global head of fixed-income research at HSBC Holdings Plc, said in an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

“Spain, Italy, Portugal and especially Ireland have done really well,” Major said.

The Spanish 10-year yield also declined 10 basis points, to 5.15 percent. The spread over bunds narrowed 15 basis points to 318 basis points, the least since Feb. 10.

Irish government bonds have handed investors a return of 9.8 percent so far this year, the biggest increase of 26 sovereign-debt indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt was the second-best performer, followed by Portugal. Greek bonds dropped 6 percent, and German bunds handed investors a loss of 0.5 percent this year, according to the indexes.

“The price action would suggest that Greece is on its own,” HSBC’s Major said.

French Confidence

The Greek March 2012 note dropped for a fifth day in six. The yield surged 424 percentage points to 2,473.46 percent and the price slipped to 33.835 percent of face value.

French bonds rose after the national statistics office said business confidence was unchanged this month, halting a seven- month decline. The nation sold 8.03 billion euros of 91-, 168-, 238- and 350-day bills. The 10-year yield dropped one basis points to 3 percent.

Dutch bonds declined, with the 10-year yield climbing two basis points to 2.45 percent. Borrowing costs rose at a sale of 1.1 billion euros of 99-day bills today, with the debt attracting an average yield of 0.05 percent, compared to 0.03 percent when similar-maturity securities were sold on Feb. 6. The nation also sold 1.2 billion euros of 191-day bills.

--Editors: Paul Dobson, Mark McCord

To contact the reporters 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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