Bloomberg News

German Bunds Drop Before EU Finance Ministers Meet on Greek Aid

November 19, 2012

German 10-year bonds fell for the first time in three days amid speculation European Union finance ministers meeting tomorrow will agree to keep bailout funds flowing to Greece, damping demand for safer assets.

Bunds dropped along with Treasuries and U.K. gilts amid optimism U.S. lawmakers will reach a deal to avoid the so-called fiscal cliff of tax increases and spending cuts. Greece’s 10- year bonds rose for a seventh day after EU finance chiefs last week gave the nation an extra two years to reach budget-deficit goals, even as the EU and International Monetary Fund disagreed over extending the deadline. Spanish notes fell before the nation sells 4.5 billion euros ($5.8 billion) of bills tomorrow.

“Bunds are slightly under pressure, which is most likely due to expectations on Greece building up,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. The market will welcome “signals that the IMF and EU are to compromise,” he said.

German 10-year yields rose two basis points, or 0.02 percentage point, to 1.36 percent at 4:47 p.m. London time. The rate dropped to 1.31 percent on Nov. 13, matching the lowest since Aug. 31. The 1.5 percent bond maturing in September 2022 fell 0.22, or 2.20 euros per 1,000-euro face amount, to 101.32.

Two-year notes yielded minus 0.022 percent. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.

EU Meeting

The meeting of the ministers from the 17-member euro area in Brussels underscores skirmishing among EU officials confronting rising unemployment and a slowing economy as they struggle with the three-year-old sovereign-debt crisis.

IMF Managing Director Christine Lagarde took issue with European governments’ decision last week to push back Greece’s debt-reduction target by two years to 2022 against the fund’s recommendations, raising questions over whether the IMF would keep financing the nation.

The yield on Greece’s 2 percent security due in February 2023 dropped 27 basis points to 17.20 percent, leaving the price at 32.61 percent of face value. The run of price gains is the longest since the period ending Oct. 9.

In addition to tomorrow’s bill sale, Spain is scheduled to auction a combined 3.5 billion euros of bonds maturing in 2015, 2017 and 2021 on Nov. 22.

Spanish Yields

Spain’s two-year rate climbed eight basis points to 3.33 percent, after rising to 3.35 percent, the highest level since Oct. 11.

That left the yield difference, or spread, between the securities and the nation’s 10-year bonds five basis points narrower at 254 basis points, after reaching 249 basis points, the least since Oct. 30.

Spain’s 10-year yield was two basis points higher at 5.90 percent, while the rate on similar-maturity Italian bonds rose three basis points to 4.90 percent.

The Portuguese government will hold a press conference about the results of the sixth review of the country’s financial aid program today at 6:30 p.m. in Lisbon, the Finance Ministry said in an e-mail.

Volatility on Portuguese bonds was the highest in euro- region markets today, followed by those of Germany, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.

The yield on Portuguese 10-year bonds dropped 32 basis points to 8.47 percent, after falling to 8.46 percent, the lowest since Nov. 5.

German bonds returned 4 percent this year through Nov. 16, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 2.2 percent.

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

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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