Greek Two-Year Yields Surge to More Than 44% to Deepening Bailout Concern
Greek Note Yields Surge to Record, Deepening Bailout Concern
Kostas Tsironis/Bloomberg
Greek note yields surged as risks over a further aid package intensified after the Finnish government said Aug. 16 that it secured a collateral arrangement to ensure its contribution would be repaid.
Greek note yields surged as risks over a further aid package intensified after the Finnish government said Aug. 16 that it secured a collateral arrangement to ensure its contribution would be repaid. Photographer: Kostas Tsironis/Bloomberg
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Greek two-year notes slumped, driving yields to a euro-era record, on concern the nation’s second bailout will be delayed as its euro-region partners squabble over a collateral deal.
Italian two-year notes fell before the nation sells 10.5 billion euros ($15.1 billion) of debt this week, even as the European Central Bank bought the securities today. The ECB also purchased Spanish debt, according to people familiar with the transactions. Greek yields have surged since Finland said on Aug. 16 it secured a collateral deal to ensure its contribution would be repaid, garnering criticism from other euro-area nations. German bonds fell as the nation sold 10-year debt.
“There are concerns that the second aid package won’t go through,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “If Finland sticks to its word and demands collateral, we will be in a gridlock situation.”
Greek two-year yields soared more than 4 percentage points to a record 44.08 percent as of 3:58 p.m. in London. The 4.6 percent security due May 2013 fell 3.06, or 30.60 euros per 1,000-euro face amount, to 57.99.
Italy’s two-year rates climbed four basis points to 3.39 percent, and the nation’s 10-year yields increased four basis points to 5.04 percent. Spain’s 10-year yields were two basis points higher at 5.01 percent.
ECB Buys
The ECB has bought government bonds in each of the past three weeks in a bid to stave off contagion from Greece, Ireland and Portugal and bring 10-year yields from Spain and Italy below 5 percent. Yields of both nations’ debt had surged to euro-era records at the start of this month.
ECB purchases of Spanish and Italian bonds were in small volumes and included 10-year notes, according to three people with knowledge of the transactions who declined to be identified because the trades were confidential. An ECB spokeswoman declined to comment.
Greek 10-year yields climbed as much as 64 basis points to 18.06 percent, the highest level since July 20.
Austria and the Netherlands, which like Finland have AAA credit ratings, called for similar collateral deals in return for providing aid to Greece, as did Slovakia and Slovenia.
“The message sent by the calls for such agreements confirms that Europe is conflicted over the very decision to provide financial support to its members, not just the amount of support,” Moody’s Investors Service said.
German Refusal
Germany “in general” wouldn’t agree to separate collateral agreements between euro member states that offer an advantage to individual governments, spokesman Steffen Seibert told reporters today. The details of Finland’s collateral arrangement with Greece have yet to be approved by euro member states, he said in Berlin.
“Ultimately we’re going to get some form of restructuring coming through in Greece,” Kit Juckes, head of foreign-exchange research in London for Societe Generale SA, said in a Bloomberg Radio interview with Tom Keene. “If you can’t even get an agreement on the terms of the bailout between the Finns and the Germans, then we’ll just reach restructuring of the debt.”
Pledges of 365 billion euros in official loans to Greece, Portugal and Ireland, as well as at least 96 billion euros of bond purchases by the ECB, have yet to fix the finances of those countries or prevent speculative attacks on Spain and Italy.
Bunds Decline
German 10-year yields rose five basis points to 2.21 percent. They fell to a record low 2.03 percent on Aug. 18 as a global rout in equities and signs the U.S. economy is faltering sparked demand for the relative safety of government debt.
The nation sold 4.9 billion euros of 2.25 percent bunds maturing in September 2021 at an average yield of 2.15 percent.
Investors bid for 1.44 times the amount on offer. That compares with a so-called bid-to-cover ratio of 1.16 at the previous auction of similar-maturity debt auctioned on July 13, which were sold at 2.70 percent.
Bunds slid even as a survey today showed German business confidence fell to the lowest in more than a year.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 108.7 in August from 112.9 in July. That’s the lowest since June 2010. Economists forecast a decline to 111, according to the median prediction of 37 economists in a Bloomberg News survey.
German government bonds have returned 5.7 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while Treasuries have returned a gain of 7.4 percent. Greek bonds have lost 18 percent, the indexes show.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net.
To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net
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