Bloomberg News

Portugal’s Bonds Drop as Nation Said to Prepare Sale; Bunds Fall

February 10, 2014

Portugal’s 10-year government bonds dropped for the first time in four days as the nation was said to hire banks to sell more of the securities.

The country’s benchmark yields climbed from near the lowest since 2006 as a personal familiar with the matter said the country hired banks including Barclays Plc and Citigroup Inc. to help arrange the sale. German bunds fell before a euro-area report this week that economists said will show gross domestic product accelerated last quarter. Austria’s bonds underperformed as the bank regulator said the nation must avoid allowing nationalized Hypo Alpe-Adria-Bank International to fail.

“The market’s been a little bit jittery,” said Luca Jellinek, head of European rates strategy at Credit Agricole Corporate & Investment Bank in London. “One of the things that keeps Portuguese bonds as skittish as they are in terms of moves, where they tend to move very quickly up or down, is the fact that there isn’t very much liquidity.”

Portugal’s 10-year yield rose six basis points, or 0.06 percentage point, to 4.99 percent at the 5 p.m. close of trading in London after dropping to 4.92 percent on Feb. 3, the lowest level since June 2006. The 5.65 percent bond maturing in February 2024 fell 0.49, or 4.90 euros per 1,000-euro ($1,364) face amount, to 105.08.

The country last issued 10-year (GSPT10YR) debt in May, when it sold 3 billion euros of the securities via banks at an average yield of 5.669 percent.

Lead Managers

Portugal also hired Banco Espirito Santo SA, Credit Agricole SA, Royal Bank of Scotland Group Plc and Societe Generale SA as joint lead managers for the sale, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.

The government, which sold 3.25 billion euros of five-year notes on Jan. 9, is planning gross issuance of between 11 billion euros and 13 billion euros in 2014, the debt agency said last month.

Secretary of State for Treasury Isabel Castelo Branco said last month she “estimates” it will be possible for the country to sell bonds through auctions before its bailout program ends in the middle of May.

Portugal’s bonds handed investors a return of 6.8 percent this year through Feb. 7, Bloomberg World Bond Indexes show. German bonds rose 2 percent and Spain’s gained 3.5 percent.

Average daily turnover in Portuguese bonds and bills was 707 million euros in December, according to the debt agency’s website. Daily trading volume of German securities is more than 20 billion euros, according to the nation’s Finance Agency.

Austrian Bonds

Austrian bonds fell as the Financial Markets Authority said the nation must avoid allowing nationalized Hypo Alpe to fail as that may hurt the credibility of the government.

It isn’t possible to find a quick bad-bank solution that makes it possible for private banks to participate in a way that was also beneficial for the government, Finance Minister Michael Spindelegger told reporters in Vienna.

Events such as Hypo Alpe are worrisome for investors, said Alexander Wojt, an analyst at Nordea Markets in Stockholm.

The country’s 10-year yield climbed four basis points to 1.98 percent.

Volatility on Austrian bonds was the highest in euro-area markets today, followed by those of the Belgium and Greece, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Bunds Decline

Germany’s 10-year yield rose two basis points to 1.68 percent after falling to 1.60 percent on Feb. 5, the least since Aug. 1. France’s climbed three basis points to 2.27 percent

“The biggest impact on bunds will be from the GDP data on Friday because we expect quite a good outcome,” said Christian Reicherter, a research analyst at DZ Bank AG in Frankfurt.

The euro-region economy expanded 0.2 percent in the final quarter of 2013, up from 0.1 percent in the previous three months, according to a Bloomberg survey before the data is released on Feb. 14. An index of the region’s investor optimism increased to 13.3 this month, from 11.9 in January, Limburg, Germany-based Sentix said today.

Slovenia is selling its first dollar-denominated notes since an overhaul of the banking industry last year helped reduce the risk that the nation would need a bailout.

The country is selling $1.5 billion of five-year notes and $2 billion of 10-year securities, according to a person familiar with the plans who asked not to be identified because the details are private.

The yield on Slovenia’s 5.5 percent notes due in October 2022 declined four basis points to 5.31 percent.

Germany sold 1.96 billion euros of 182-day bills today, while France auctioned three-, six- and 12-month securities.

Germany’s 10-year break-even rate, a measure of inflation expectations, fell for a fifth day. The rate dropped three basis points to 1.34 percentage points, the lowest closing level since May 2012.

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: Paul Dobson at pdobson2@bloomberg.net


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