Greek and Portuguese yields climbed to records and the cost to insure the nations’ bonds against default jumped to all-time highs amid mounting concern countries in the region will have to restructure their debt.
The extra yield investors demand to hold Irish 10-year bonds instead of benchmark German bonds rose above 700 basis points for the first time, while the spread between Greek 10- year bond yields and bunds widened to the most since at least 1998, when Bloomberg began collecting the data. Portugal’s 10- year spread over bunds also reached a record. France sold bonds maturing between 2013 and 2040.
“These rumors about restructuring are the key factor that have been driving yields up,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “The idea of a restructuring is clearly scary. This is why people are trying to get rid of the bonds. It’s just speculation at the moment, but it is driving yields up.”
Greek 10-year bond yields rose as much as 20 basis points, reaching a euro-era record of 14.95 percent, before trading at 14.93 percent at 4:33 p.m. in London. That’s up from 13.83 percent on April 15. Two-year yields also reached a record, climbing as much as 131 basis points to 23.33 percent. That compares with 18.50 percent at the end of last week.
European government bond markets are closed on April 22 and 25 for holidays. Trading will resume on April 26.
Two-year yields have reached records in each of the past four days even as Greek officials said they have no plans for a debt restructuring. The cost of insuring Greek sovereign bonds jumped 40 basis points to 1,340 basis points according to CMA prices for credit default swaps. That signals a 68 percent chance of default within five years. Portuguese default swaps rose 24 basis points to 662, also a record. Contracts on Ireland increased 40 basis points to 663, approaching the record closing level of 674 on Jan. 10, CMA prices show.
“Every day that goes by, the market is adding more pressure for them to restructure,” said Eric Wand, a rates strategist at Lloyds Bank Corporate Markets in London. “We don’t think there’s any great rush for Greece to go down the restructuring route, but I don’t imagine the market is going to let this one lie.”
Portuguese 10-year government bond yields rose to a euro- era record of 9.58 percent. That’s an increase of 58 basis points since April 15. The yield on the nation’s two-year note climbed to a record 11.52 percent, up from 9.81 percent at the end of last week. Ireland’s two-year note yields rose to an all- time high of 11.58 percent, while the nation’s 10-year yield reached 10.49 percent.
Earlier this month, Portugal became the third euro-region country to seek an international bailout after Greece sparked a sovereign-debt crisis that threatened to splinter the currency bloc a year ago and then engulfed Ireland.
The Greek-German 10-year spread widened to 1,167 basis points today from 1,045 on April 15. The Portuguese-German spread widened to 631 basis points from 562 at the end of last week.
The 10-year bund yield dropped four basis points to 3.27 percent today, down from 3.38 percent on April 15. German two- year note yields were six basis points lower at 1.77 percent, from 1.84 percent at the end of last week.
“Under current plans, Greece has to finance part of its budget deficit through the markets next year, but this looks increasingly impossible,” Joost van Leenders, a strategist at BNP Paribas Investment Partners in Amsterdam wrote in a note published today. “If so, it would need an even bigger bailout or have to restructure its debt.”
Ifo, French Auction
German Chancellor Angela Merkel doesn’t have a majority in her coalition government in favor of bailing out euro-region members under the current terms and conditions, the Financial Times Deutschland reported, citing people in the coalition it didn’t identify.
A report showed business confidence in Germany declined in April. The Munich-based Ifo institute’s gauge declined to 110.4 from 111.1 in March. Economists expected a decline to 110.5, according to the median of 38 forecasts.
The French five-year note yield fell four basis points to 2.92 percent even as the nation sold an additional 4.89 billion euros of the securities today. Investors bid for 2.03 times the amount of debt on sale. That’s down from a so-called bid-to- cover of 2.58 at the previous auction of the notes on March 17.
France also sold a total of 3.68 billion euros of notes maturing in 2013 and 2015, as well as 1.93 billion euros of inflation-protected securities due 2019, 2022 and 2040.
German government bonds have handed investors a loss of 2.1 percent this year through yesterday, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while Treasuries have returned 0.4 percent. French debt has lost 1.6 percent, the indexes show. Greece’s has declined 8.7 percent, Portugal’s 12.3 percent and Ireland’s 5 percent.
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