Bloomberg News

Bund Yields Fall to Lowest in Four Months on Greece; Italian Bonds Decline

March 12, 2012

Greece's finance minister Evangelos Venizelos, right, stops to speak to the media as he arrives for the Eurogroup meeting at the European Council headquarters in Brussels. Photographer: Jock Fistick/Bloomberg

Greece's finance minister Evangelos Venizelos, right, stops to speak to the media as he arrives for the Eurogroup meeting at the European Council headquarters in Brussels. Photographer: Jock Fistick/Bloomberg

German bonds advanced, sending yields down to the lowest in almost four months, on concern Greece’s finances will worsen even as regional leaders prepare to sign off on the nation’s second bailout.

Ten-year bunds rose for a second day as a government report showed wholesale-price inflation eased last month, helping to preserve the value of the fixed payments. Ministers from the 17- nation currency bloc will meet in Brussels today after investors agreed last week to take a loss on their Greek debt. The cost of insuring against default on the region’s bonds rose to the highest in eight weeks after the declaration of a credit event triggering $3.2 billion of Greek debt protection contracts.

“People are trying to digest what the implications are of the Greek credit event and looking at the Eurogroup meeting” and that is supporting bunds, said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “Greece was never going to go far from the market’s attention. There’s a little bit of caution creeping in, but it’s caution rather than negativity.”

Germany’s 10-year bund yield fell four basis points, or 0.04 percentage point, to 1.76 percent at 4:09 p.m. London time, after dropping to 1.74 percent, the least since Nov. 15. The 2 percent bond due January 2022 climbed 0.345, or 3.45 euros per 1,000-euro ($1,312) face amount, to 102.175.

Euro-area ministers will finalize the accord to give Greece a 130 billion-euro aid package, the nation’s second. They’ll also focus on Spain’s budget-cutting efforts and Portugal’s aid program.

EFSF Bonds

European Financial Stability Facility notes due March 2013 that will be issued to holders of Greek government bonds as part of the nation’s debt swap may yield about 0.58 percent, Bloomberg data show. The securities were bid at 99.761 cents on the euro, Commerzbank AG prices showed. They were offered at 99.84 cents, also according to Commerzbank. The bid yield was 0.65 percent and the offer was 0.56 percent.

Greek government bonds due in February 2023 were bid at 27.75 cents on the euro, to yield 18.49 percent, Commerzbank data showed. They were offered at 29 cents, according to BNP Paribas prices. That’s a yield of 17.88 percent.

Germany sold 3.493 billion euros of six-month bills at a yield that was lower than at the previous auction. Italian bonds dropped as the nation entered its fourth recession since 2001. The euro weakened 0.3 percent against the yen to 107.95.

CDS Payouts

Portuguese 10-year bonds rose for a fourth day after the International Swaps & Derivatives Association said last week Greece’s use of collective action clauses forcing investors to take losses under its debt restructuring triggered payouts on the credit-default-swap insurance.

The decision gives investors holding the bonds of nations such as Portugal confidence that any protection they take out to guard against the risk of default will be honored in case the countries are forced into a situation similar to Greece.

“It was always likely that CDS would trigger,” said Elisabeth Afseth, a strategist at Investec Bank Plc in London. “Confirmation may be giving a bit of confidence that CDS is still useful as a hedge.”

The yield on Portugal’s 10-year bonds declined 20 basis points to 13.65 percent.

Volatility in Portuguese government debt was the second highest in euro-area markets today, behind Greek securities, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.

Italian Contraction

Italian bonds fell for a second day after a government report showed the economy shrank for a second quarter, confirming a preliminary estimate from February.

Gross domestic product declined 0.7 percent in the last three months of 2011 from the previous quarter, the national statistics institute said in Rome.

Ten-year yields climbed six basis points to 4.90 percent, after rising three basis points on March 9. The yield is down from a euro-era record of 7.48 percent on Nov. 9.

German wholesale prices increased 2.6 percent in February from a year earlier after rising 3 percent in the previous month, the Federal Statistics Office said today.

Germany sold bills due Sept. 12 at an average yield of 0.053 percent, down from 0.076 percent at the previous auction. Investors bid for 1.6 times the securities offered, compared with a so-called bid-to-cover ratio of 1.5 on Feb. 13.

Bill Auction

France sold 8 billion euros of 84-, 175- and 357-day bills today.

Belgian two-year notes rose after policy makers approved an additional 2.5 billion euros in austerity measures to bring the budget deficit within the European Union limit as economic growth slows. Two-year yields declined two basis points to 0.98 percent.

Italian 10-year bond futures may weaken toward 103.69 should they break below a key support level, according to UBS AG, citing trading patterns.

The contracts “are vulnerable while they trade below 107.80, the high from March 9,” Richard Adcock, head of fixed- income technical strategy in London, wrote in a note to clients.

A break of 105.68, the mid-point of last week’s rally, “opens the door back to 103.69.” That level represents the 38 percent Fibonacci retracement of the February recovery, he wrote. The contract expiring in June fell to 106.05, after falling to as low as 105.74.

Support refers to an area on a chart where analysts anticipate orders to buy a security to be grouped. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

German bunds have returned 0.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds have earned 13 percent, the data show, with U.S. Treasuries losing 0.6 percent.

To contact the reporters on this story: David Goodman in London at dgoodman28@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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