German government bonds advanced as concern Greek debt-swap talks are stalling boosted demand for the safest fixed-income assets.
Benchmark 10-year bunds snapped a four-day drop amid speculation the European Central Bank will oppose any restructuring of its bond holdings in the indebted nation. The securities outperformed most of their euro-region peers, with the extra yield investors demand to hold the securities of Portuguese and Italian bonds increasing the most. Germany’s 30- year bonds advanced for the first time in eight days after yields at a sale of the securities fell to a record low.
“The bullish move in bunds does sit comfortably alongside these ongoing negative headlines about Greece,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. The ECB’s refusal to participate “means that we are still at an impasse and the clock is ticking. We also had a very good 30-year bund auction, which is supporting the long end of the bund curve.”
Germany’s 10-year bund yield fell three basis points, or 0.03 percentage point, to 1.96 percent at 4:29 p.m. London time. The 2 percent bond due in January 2022 rose 0.295, or 2.95 euros per 1,000-euro ($1,298) face amount, to 100.35.
The 30-year bond yield dropped four basis points to 2.60 percent, after the July 2042 bond auctioned drew an average yield of 2.62 percent, the lowest since Bloomberg began collecting the data in December 1993. The difference in yield between two-year and 30-year German debt narrowed for the first time in five days to 240 basis points.
Greek bonds due October 2022 were trading at about 21 percent of face value after negotiations to cut the nation’s borrowing via a voluntary exchange of bonds stumbled. European finance ministers signaled yesterday that they would push private investors to accept bigger losses, after bondholders made what Institute of International Finance Managing Director Charles Dallara described as their “maximum” offer.
A deal is key to a second financing package for the cash- strapped country, which faces a 14.5 billion-euro bond payment on March 20.
While the ECB faces pressure to join private-sector investors in taking losses on Greek debt, the central bank sees this as potentially damaging to confidence in the institution if it were to take part, said two people familiar with the Governing Council’s stance, who declined to be identified because the matter is confidential.
The German government will oppose any attempt to make the ECB accept a writedown on its Greek debt holdings, said Michael Meister, the ranking finance spokesman for Chancellor Angela Merkel’s Christian Democratic Union party.
The Greek two-year note yield rose 357 basis points to 175.95 percent. The benchmark October 2022 bond yield climbed 18 basis points to 33.54 percent.
The ECB’s position has “been perceived as something that prevents a consensus there in Athens,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “It’s something that everybody continues to speculate about -- how can this public-sector involvement happen if the ECB refuses to take part in it?”
Volatility on Portugal’s debt was the highest in developed- nation debt markets today, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The 10-year yield jumped 44 basis points to 14.62 percent, 3.1 times the 90-day average change. The five-year note yield surged to a record-high 18.93 percent.
Italy’s 10-year yield was six basis points higher at 6.23 percent, pushing the spread over similar-maturity bund yields 10 basis points wider to 4.27 percentage points.
Irish Debt Swap
Irish two-year securities advanced after the nation’s debt agency said it will swap a note due to be repaid in 2014 for one maturing a year later, to smooth its funding requirements.
The National Treasury Management Agency said today it will offer to switch an 11.9 billion euro bond due for payment in January 2014 for a new note maturing in February 2015 yielding 5.15 percent.
The Irish two-year note yield fell 24 basis points to 5.39 percent.
Greek bonds have handed investors a 63 percent loss in the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt has returned 9.9 percent over the same period.
After volatility is taken into account, German bonds produced a 1.6 percent return, according to Bloomberg risk- adjusted return rankings. That compares with 1.7 percent for Dutch securities, 1.9 percent for U.S. Treasuries and 2.5 percent for U.K. debt.
The risk-adjusted return is calculated by dividing total return by volatility, or the degree of daily price-swing variation, giving a measure of income per unit of risk. The returns are not annualized.
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