Bloomberg News

German Bunds Fall Before Ministers Discuss Bailout States

January 21, 2013

German bonds fell, pushing 10-year yields toward a three-month high, as European finance ministers gathered to assess Spain, Cyprus and Greece and discuss bank aid amid signs the European debt crisis is easing.

Benchmark bunds dropped after the Bundesbank said the German economy has started to show signs of recovery. Portuguese notes declined for the first time in four days after the International Monetary Fund said the country’s plan to regain access to bond markets two years after requesting a bailout is “viable.” Spanish 10-year bonds fell as the country hired banks for a debt sale. Dutch bonds dropped before the nation auctions securities tomorrow.

“We’ve got the finance-minister meeting today and we’ll see how well that goes,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “We are looking for bund yields to rise. Yields are biased more to the upside because sentiment and confidence is improving.”

Germany’s 10-year bund yield rose four basis points, or 0.04 percentage point, to 1.59 percent at the 5 p.m. London close. The rate climbed to 1.64 percent on Jan. 18, the highest level since Oct. 18. The 1.5 percent security maturing in February 2023 fell 0.35, or 3.50 euros per 1,000-euro ($1,331) face amount, to 99.15.

Two-year yields rose two basis points to 0.20 percent after reaching 0.24 percent on Jan. 18, the most since April 2.

At a meeting in Brussels today euro-area ministers will probably clash over how and when the 500 billion-euro European Stability Mechanism can bypass governments and provide direct help to banks.

Economic Recovery

With officials declaring the worst of the region’s three- year market emergency over, finance ministers are debating whether the ESM should take over earlier bank bailouts that were routed through governments and what to do with so-called legacy assets. A European Union aide who briefed reporters defined those as loans already on a bank’s balance sheet that could cause problems in the future.

“There won’t be much trading today because the U.S. is closed,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels. “At the finance ministers meeting we don’t expect a major outcome on the banking deal.”

‘Better Outlook’

“The largely stable labor market and a better outlook for output suggest that the economic weakness won’t last all that long,” the nation’s Frankfurt-based central bank said in its monthly report today. A recovery “is already appearing in the first quarter of 2013.”

Bonds from Cyprus advanced even as a euro-area official told reporters that the region’s finance ministers won’t decide on a financing plan for the nation at today’s meeting or before Cypriot elections in February.

The nation’s 4.5 percent bond maturing in April 2017 rose for a fourth day, pushing the yield down three basis points to 10.92 percent.

Cyprus should have sufficient financing through March and could reach a deal with European Union authorities in the second half of that month, the official told reporters in Brussels.

Portuguese two-year yields climbed 10 basis points to 3.34 percent. The nation aims to regain access to markets by September.

“The authorities’ strategy for a gradual return to markets remains viable,” the Washington-based IMF said in a staff report about the sixth review of the rescue program for Portugal, released Jan. 18. “The authorities are actively engaging with potential investors, including through road shows, with a view to issuing debt at two- or three-year tenors when market conditions allow.”

Spanish Auction

Spanish 10-year bonds declined after the nation hired banks for the sale of a new bond due in January 2023, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.

The yield on the benchmark securities climbed eight basis points to 5.16 percent.

The Dutch 10-year yield rose four basis points to 1.73 percent. The nation’s debt agency sold 2.31 billion euros of 96- day bills at a rate of minus 0.011 percent today. It is scheduled to auction bonds maturing in 2014 and 2042 tomorrow.

Belgian bonds were the most volatile in euro-area markets, followed by those of France, according to measures of 10-year or similar-maturity debt, the yield spread between two- and 10-year securities, and credit-default swaps. The French 10-year bond yield climbed five basis points to 2.18 percent.

U.S. markets are closed for the Martin Luther King Jr. public holiday.

German bonds have handed investors a loss of 1.1 percent this month through Jan. 18, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s gained 1.7 percent, while France’s fell 0.9 percent.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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


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