Greek Bond Yields, Swaps Climb to Records Before EU Leaders Discuss Crisis
Greek, Spanish, Portuguese Bonds Decline Amid Debt Auctions
Mario Proenca/Bloomberg
Portuguese 10-year bonds fell for a second day as the ation prepares to sell notes tomorrow.
Portuguese 10-year bonds fell for a second day as the ation prepares to sell notes tomorrow. Photographer: Mario Proenca/Bloomberg
March 8 (Bloomberg) -- Steven Major, global head of fixed income research at HSBC Holdings Plc, discusses Europe's sovereign debt crisis. He talks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
Greek 10-year bond yields and credit-default swaps surged to a record as borrowing costs increased at a debt sale and before European leaders begin meetings aimed at containing the sovereign debt crisis.
Spanish bonds also slid as the government sold debt through banks. Greek bond losses extended declines to a ninth day after the nation’s credit rating was cut by Moody’s Investors Service yesterday. Portuguese 10-year bonds fell for a second day before a notes auction tomorrow. German 10-year bonds dropped amid speculation the nation’s economic growth will add to pressure on central bankers to increase interest rates.
“There is quite a lot of peripheral supply that needs to be digested and apparently we’re struggling to find more buying interest at these levels,” said Marcel Bross, a fixed-income strategist at Frankfurt-based Commerzbank AG. “We have these important meetings coming up, where we see some potential for disappointment.”
The yield on 10-year Greek bonds jumped as much as 52 basis points to 12.85 percent, the most since Bloomberg began collecting the data in 1988, with the increase in yields the biggest since Oct. 27. It was at 12.84 percent as of 5:04 p.m. in London. The 6.25 percent securities maturing in June 2020 fell 2.04, or 20.4 euros per 1,000-euro ($1,389) face amount, to 65.29.
The extra yield investors demand to hold the securities instead of German bunds widened to as much as 956 basis points, the most since Jan. 10. The euro fell 0.4 percent to $1.3912.
EU Summits
Credit-default swaps insuring Greek government bonds rose five basis points to an all-time high 1,037 basis points, meaning it costs $1.04 million annually to insure $10 million of debt for five years. They ended the day seven basis points lower at 1,025 basis points.
Greece sold 1.625 billion euros of 182-day bills at an average yield of 4.75 percent, up from 4.64 percent at a previous sale of the securities last month, the nation’s debt management office said today. Investors bid for 3.59 times the securities offered, down from 4.54 times at the earlier sale. The debt office said it aimed to sell as much as 1.25 billion euros of the bills. Foreign investors bought 31 percent of the issue, debt chief Petros Christodoulou said in an e-mail.
Greek, Irish and Portuguese bonds are sliding before meetings of policy makers culminating in a summit of EU nations on March 24-25 that is intended to approve a package of measures designed to calm the region’s bond markets. Austrian Chancellor Werner Faymann told reporters today in Vienna that the nation opposes easing conditions of Ireland and Greece’s bailouts.
Market Disappointment
Moody’s lowered Greece’s rating three steps to B1 yesterday and said the risk of default is rising. EU Monetary Affairs Commissioner Olli Rehn said it’s necessary to leave open the role of bondholders in a planned permanent debt-crisis mechanism to guard against market “contagion.”
Two German states governed by Chancellor Angela Merkel’s party have demanded a say in shaping the euro-area’s response to the debt crisis, raising a potential hurdle to any attempt to pass additional measures in parliament.
“The market is bracing itself for disappointment,” said Mohit Kumar, a fixed-income strategist at Deutsche Bank AG in London.
Spanish 10-year yields climbed nine basis points to 5.48 percent after the nation raised 4 billion euros by selling 15- year bonds via banks. The notes were priced to yield 217 basis points more than the benchmark mid-swaps rate, according to a banker with direct knowledge of the deal.
Factory Orders
Ten-year Portuguese yields were seven basis points higher at 7.63 percent. The country plans to issue up to 1 billion euros of 2013 notes tomorrow.
The yield on similar-maturity Irish debt increased as much as 18 basis points to 9.60 percent. The yield on the German bund, the euro region’s benchmark government security, was three basis points higher at 3.31 percent.
German factory orders, adjusted for seasonal variations and inflation, rose 2.9 percent in January from the previous month, exceeding a forecast for a 2.5 percent gain by economists surveyed by Bloomberg. Bundesbank President Axel Weber said Germany’s “strong” economic recovery will continue this year, and he doesn’t want to correct market expectations for as many as three quarter-point increases in borrowing costs this year.
Helaba Landesbank Hessen-Thueringen raised its forecast for German bund yields to 3.50 percent by “mid 2011” from 3 percent, economists Viola Stork and Ralf Umlauf said in an investor report today, citing the prospect of higher interest rates set by the European Central Bank.
Diaspora Bonds
Germany is scheduled to sell 2 billion euros of 10-year inflation-linked bonds tomorrow.
Greece plans to sell about $3 billion of bonds to retail investors in the U.S., according to Greek Finance Ministry documents. The government approved fees to be paid for U.S. Securities and Exchange Commission clearance for the sale, which will be targeted mainly at people of Greek descent, up to a nominal amount of $3 billion, according to a statement on the government’s website. No further details were available.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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