Greek, Irish Bonds Fall as Oil Gain Damps Demand for Higher-Yield Assets

Greece and Ireland led declines in the bonds of the euro region’s most-indebted nations as escalating violence in Libya pushed the price of oil to a 30- month high, sapping demand for assets perceived to be risky.

German 10-year bund yields reached the lowest in almost a month as tensions rose in Africa’s third-largest crude producer. European stocks fell for the fifth consecutive day. Italy sold 1.5 billion euros ($2.1 billion) of inflation-linked securities today and plans to sell up to 9.5 billion euros of notes and bonds tomorrow. An index of European economic confidence in February rose to the highest in more than three years.

“The tensions going on in the Middle East and in northern Africa are definitely driving the safe-haven assets,” said Norbert Aul, an interest-rates strategist at Royal Bank of Canada in London. “Massive supply, including Italy tomorrow, is also a supportive factor for the bund and suppressing the peripherals.”

Greek 10-year yields climbed 11 basis points, or 0.11 percentage point, to 11.86 percent at 4:24 p.m. in London, after reaching 11.89 percent, the highest level since Jan. 11. The Irish 10-year yield surged 17 basis points to 9.32 percent. Portuguese 10-year yields added four basis points to 7.50 percent, while Italian 10-year yields gained one basis point to 4.84 percent.

The yield on the 10-year bund, the euro region’s benchmark government security, declined one basis point to 3.13 percent after earlier reaching 3.11 percent, the lowest level since Jan. 25. Two-year German note yields fell two basis points to 1.53 percent.

Italian Sale

Italy sold 1.5 billion euros of 2.1 percent index-linked notes maturing in September 2021. It received bids for 1.65 times the securities sold, compared with 2.14 at the sale on Oct. 27. The average yield was 2.81 percent, compared with 2.18 percent at the October sale.

“The auction went well,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “It reflects good demand for inflation-linked products. Overall demand should be good” at tomorrow’s auctions, he said.

The nation plans to sell up to 1.5 billion euros of floating-rate notes due in 2017 and as much as 3 billion euros of 2013 bonds and 5 billion euros of debt maturing in 2021 tomorrow.

The Stoxx Europe 600 Index dropped 0.7 percent. Brent oil for April settlement rose as much as $8.54, or 7.7 percent, to $119.79 a barrel on the ICE Futures Europe exchange, the highest level since Aug. 21, 2008.

‘Safe-Haven’ Limits

“The Middle East situation is a real complication,” said Sean Maloney, a fixed-income strategist at Nomura Holdings Inc. in London. “It wouldn’t take much to shift us the other way. If the data continues like it has been there’s a limit to how far the safe-haven flows can go.”

The yield on the German two-year note rose above that of similar-maturity U.K. securities yesterday for the first time since Feb. 1. The so-called spread was eight basis points today.

Three-month Euribor futures rose for the first time in five days, with the implied yield on the contract expiring in December falling three basis points to 1.95 percent, as traders pared bets that the European Central Bank will boost borrowing costs. The implied yield has risen from 1.33 percent at the end of 2010.

Policy makers will make the decisions necessary to maintain price stability, ECB President Jean-Claude Trichet told reporters yesterday in Frankfurt. The central bank will hold a policy meeting on March 3.

European Confidence

A gauge of economic confidence in the 17-nation euro area increased to 107.8 in February, the most since September 2007, from a revised 106.8 a month earlier, according to a report from the European Commission today. The median estimate of 28 economists surveyed by Bloomberg News was for a gain to 106.8 from a previously reported 106.5.

German exports advanced 2.5 percent in the final three months of last year, a report showed today, beating economists’ forecasts for a 1.1 percent rise.

Germany’s consumer price index increased 0.5 percent in February after falling 0.4 percent in January, according to the median forecast of 28 economists in a Bloomberg News survey before tomorrow’s report.

Euro-region inflation breached the ECB’s 2 percent ceiling for a second month in January, accelerating to 2.4 percent, the fastest since October 2008.

German government bonds have handed investors a loss of 1.2 percent this year, compared with a 3.1 percent return for Greek debt, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries have lost 0.4 percent and U.K. gilts 1.5 percent over the same period, the indexes show.

The losses contrast with gains made in 2010 as the euro- region’s sovereign-debt crisis fueled investor demand for the safest fixed-income assets. German bunds returned 6.3 percent in 2010, the indexes show. Treasuries gained 6 percent, while U.K. gilts returned investors 7.6 percent last year.

To contact the reporters on this story: Emma Charlton in London at echarlton1@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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