German Bund Yields Climb to Two-Week High Amid Greek Debt-Deal Optimism

German bonds fell, pushing 10-year yields to the highest in almost two weeks, as a Greek official said the government and its creditors were working on the final draft of an agreement to ensure another aid package.

Bunds dropped for the fourth time in five days on speculation the agreement will be approved at a meeting between Greek Prime Minister Lucas Papademos and the leaders of other political parties today, damping demand for the region’s safest assets. Dutch bonds declined after the nation auctioned 6 billion euros ($7.9 billion) of 10-year debt.

“Optimism that Greece might be reaching a deal has improved sentiment and weighs on safe-haven securities such as bunds and Dutch bonds,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “There is a clear risk-on trade in place this afternoon with some decent flows into the periphery too.”

The German 10-year yield climbed eight basis points, or 0.08 percentage point, to 1.96 percent at 5 p.m. London time, after rising to 1.97 percent, the highest level since Jan. 25. The 2 percent bond due January 2022 dropped 0.685, or 6.85 euros per 1,000-euro face amount, to 100.32. The two-year yield rose four basis points to 0.22 percent.

While the Greek prime minister and party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for a 130 billion-euro rescue.

Greek Auction

Greece sold 812.5 million euros of 26-week bills today at a yield of 4.86 percent, according to the Public Debt Management Agency. That compares with a yield of 4.90 percent at the previous auction on Jan. 10. Investors bid for 2.72 times the securities sold, from 2.80 times last month.

The Netherlands auctioned 2.25 percent bonds due in July 2022 at an average yield of 2.359 percent, the State Treasury Agency said. The nation’s 10-year yield increased six basis points to 2.27 percent.

Italy’s 10-year bond yield dropped three basis points to 5.59 percent after earlier rising as much as 10 basis points.

The extra yield investors demand to hold Italy’s 10-year bonds instead of German bunds shrank 11 basis points to 3.63 percentage points, the lowest close since Oct. 14. The spread between Spanish and German 10-year yields narrowed three basis points to 3.1 percentage points.

The European Central Bank will keep its main refinancing rate at a record low 1 percent on Feb. 9, according to the median estimate of 57 economists in a Bloomberg News survey. Two analysts forecast policy makers will lower the rate to 0.75 percent, the survey shows.

Germany’s bonds have returned 12 percent in the past year as the European debt crisis worsened, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Italian debt was little changed and Greek securities tumbled 65 percent, the indexes show.

Germany is scheduled to sell an additional 4 billion euros of five-year notes tomorrow.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@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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