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Greek Bonds Rise on Aid Deal Optimism; Portuguese Debt Falls

June 01, 2011

June 1 (Bloomberg) -- Two-year Greek notes rose for a third day, pushing yields down to the lowest in more than two weeks, amid growing optimism European policy makers will reach a deal on additional aid to prevent the nation defaulting.

German two-year government notes fell for a third day as demand for the region’s safest assets waned. Governments are ruling out a restructuring of Greece’s debt under aid plans to be worked out by June 20, European Union Commissioner Olli Rehn said today. European Central Bank policy makers may back a plan to roll over Greek bonds, said two officials familiar with the situation. Portugal’s government bonds slid as the nation’s borrowing costs rose at a three-month bill auction.

“We had some positive comments around Greece and this has made the market hope that there could be a solution,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “This is helping peripherals and weighing on bunds. Given the massive rally we’ve seen in bunds, as we get closer to something that may be a solution, people want to sell.”

Greek two-year notes advanced, pushing the yield down 46 basis points to 24.55 percent at 4:26 p.m. in London, after touching 24.53 the least since May 17. The yield fell below 25 percent for a second day, having been above that level for six days between May 23 and May 30. The 4.6 percent security due May 2013 rose 0.60 or 6.0 euros per 1,000-euro ($1,444) face amount, to 71.64. The nation’s 10-year bond yield rose 12 basis points to 16.16 percent.

Greek Loans

Saddled with Europe’s heaviest debt load, Greece is seeking additional loans after last year’s 110 billion-euro European-led package was insufficient to plug its fiscal hole. European officials preparing the second bailout may offer bondholders incentives to roll over maturing debt without triggering a credit-rating downgrade that would roil Europe’s banking system, two people with knowledge of the talks said.

Two-year German note yields were little changed at 1.61 percent, after reaching 1.65 percent earlier. The 10-year bund yield fell three basis points to 2.99 percent. Earlier, it rose to 3.07 percent.

German bonds rose in May, pushing the 10-year yield down 20 basis points, as concern that Greece may restructure its debt burden boosted demand for the safest assets.

Bunds stayed lower today even as a report showed European manufacturing growth slowed more than initially estimated in May, adding to signs the region’s recovery is losing momentum.

European Data

A gauge of manufacturing in the 17-nation euro area slipped to 54.6 from 58 in April, a report showed today. That’s below an initial estimate of 54.8 released on May 23. A reading above 50 indicates growth.

Portugal’s 10-year yield rose 15 basis points to 9.76 percent, while two-year note yields climbed 45 basis points to 11.39 percent.

The nation sold 850 million euros of 112-day bills. The securities due in September were issued at an average yield of 4.967 percent, the country’s IGCP debt-management agency said, up from the average yield of 4.652 percent at a previous auction of three-month bills on May 4. The auction attracted bids for 2.7 times the amount offered, compared with a bid-to-cover ratio of 1.9 in last month’s sale.

On May 26, the IGCP said the so-called total indicative amount for today’s auction was between 750 million euros and 1 billion euros.

French Auction

“The debt agency probably stopped the auction at 850 million to avoid the cost of funding breaking above 5 percent,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan.

French 10-year yields fell five basis points to 3.34 percent as the nation sold 8.4 billion euros of bonds maturing in 2018, 2021 and 2023. It sold 5 billion euros of 3.25 percent bonds maturing in October 2021 at an average yield of 3.5 percent, compared with 3.64 percent at last month’s sale of similar-maturity securities. Investors bid for 2.54 times the securities on offer, down from 3.34 times at the similar sale on May 5.

Government bonds from Germany have returned nothing this year, indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg show, while Treasuries have handed investors a 2.7 percent gain. Greek debt has lost 12 percent, while Portugal’s has lost 14 percent.

--Editors: Mark McCord, Peter Branton

To contact the reporter on this story: Emma Charlton in London at

To contact the editor responsible for this story: Daniel Tilles at

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