Bloomberg News

German Bund Yields Approach Record Low on Greek Election Call

May 15, 2012

German 10-year bund yields were within four basis points of a record low as new Greek elections were called for after attempts to form a government failed.

German bonds fell earlier after a report showed gross domestic product in Europe’s biggest economy rose more than analysts forecast. The euro region avoided a recession, according to a separate report. Italy’s bonds slid, pushing the 10-year yield to a three-month high, after Moody’s Investors Service cut the credit ratings on 26 of the nation’s banks. Greek bonds slid for an 11th day.

“The news keeps uncertainty in the market,” said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “That will underpin demand for bunds. It keeps the risk open for another five or six weeks and gives another reason not to sell core markets aggressively.”

The German 10-year yield was little changed at 1.47 percent at 5:07 p.m. London time, after rising as much as four basis points to 1.50 percent. The rate declined to 1.434 percent yesterday, the lowest since Bloomberg began tracking the securities in 1989. The 1.75 percent bond maturing in July 2022 traded at 102.615 percent of face value.

Greece will go to the polls again “in a few days under adverse conditions,” said Evangelos Venizelos, the leader of the Pasok party, which was one of the two biggest vote winners in inconclusive May 6 elections.

Greek Gridlock

The announcement came after Venizelos and other party leaders met President Karolos Papoulias today in Athens. A second Greek ballot threatens to extend the political gridlock that has left the country without a government.

Greece’s 2 percent bond due February 2023 declined for an 11th day, pushing the yield up 182 basis points, or 1.82 percentage points, to 29.401 percent. The price dropped to 14.27 percent of face value.

Greece sold three-month treasury bills at a yield of 4.34 percent, up from 4.2 percent at the previous auction on April 17, the Public Debt Management Agency said. Investors bid for 2.32 times the securities offered, the agency said.

Italy’s two-year note yield jumped for the third day, gaining 21 basis points to 3.51 percent, the highest since May 3, with the 10-year yield increasing 17 basis points to 5.87 percent, the most since Feb. 16. Five-year note yields surged above 5 percent for the first time since Jan. 31, advancing 22 basis points to 5.01 percent.

German GDP

German GDP rose 0.5 percent in the first quarter after falling 0.2 percent in the previous three months, the Federal Statistics Office in Wiesbaden said. Economists surveyed by Bloomberg predicted a 0.1 percent gain.

The data “reinforces the story of a two-speed economy, where Germany operates at one level and everyone else operates at another,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London.

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

The Irish 5 percent bond due October 2020 fell for a second day, pushing the yield up 40 basis points to 7.42 percent, the highest level since Jan. 25, according to Bloomberg data.

Germany plans to sell an additional 5 billion euros of its benchmark 10-year bund tomorrow. France is scheduled to auction notes maturing between 2014 and 2017, as well as inflation- linked securities due between 2022 and 2027.

‘Bunds Are Bullish’

German 10-year bund futures may advance as much as 0.6 percent should they remain above a key level of support, UBS AG said, citing trading patterns.

The contracts may climb to 144.04, according to Richard Adcock, head of fixed-income technical strategy in London, citing Fibonacci analysis.

The bund futures contract expiring in June fell 0.2 percent to 143.29. It climbed to a record 143.69 yesterday. Support refers to an area on a chart where analysts expect 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 certain highs or lows.

German debt has returned 2.7 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 8.8 percent, and Spanish securities lost 3.2 percent.

To contact the reporter 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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