German Bunds Fall as Greek Leaders Reach Austerity Deal; Italy Bonds Rise

German bunds fell for a third day as Greek politicians reached a deal on austerity measures required for another bailout package, damping demand for the euro- region’s safest securities.

Ten-year bund yields climbed to the highest level in eight weeks after European Central Bank President Mario Draghi said recent surveys confirm “signs of stabilization” in the region. He spoke after the ECB kept interest rates on hold for a second month. Italian and Spanish bonds rose after a U.S. report showed jobless claims unexpectedly fell, boosting demand for higher- yielding assets.

“Any further steps toward an agreement and implementation of the things that Greece needs to do is positive for risk sentiment,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. Bund yields also moved higher as U.S. economic data “continued to be firmer and positive. That has given support to sentiment,” he said.

The German 10-year yield rose four basis points, or 0.04 percentage point, to 2.03 percent at 4:21 p.m. London time, after rising to 2.05 percent, the highest since Dec. 13. The 2 percent bond due January 2022 dropped 0.38, or 3.80 euros per 1,000-euro face amount, to 99.77. The two-year yield climbed two basis points to 0.27 percent.

“Discussions between the Greek government and the troika were successfully completed this morning,” Greek Prime Minister Lucas Papademos’s office said in a statement, referring to the European Commission, ECB and International Monetary Fund. “There is a general agreement in the context of the new program ahead of tonight’s euro group meeting.”

Venizelos in Brussels

The accord came after Greek Finance Minister Evangelos Venizelos arrived in Brussels for an emergency meeting of euro- region finance ministers to discuss the 130 billion-euro ($172.9 billion) bailout and a debt swap that will impose a loss of about 70 percent for investors.

The ECB kept its refinancing rate at a record low 1 percent, matching the median estimate of economists in a Bloomberg News survey. There are “tentative signs of stabilization in economic activity,” Draghi said at a press conference following the meeting.

Greek two-year notes gained, with the yield on the 4 percent note maturing in August 2013 dropping 5.5 percentage points to 182 percent. The price gained 0.7 to 22 percent of face value.

Italian Bonds

Italy’s bonds gained for a fourth day after the U.S. Labor Department said applications for jobless benefits decreased 15,000 in the week ended Feb. 4. Job creation also accelerated last month, showing the world’s largest economy is gaining momentum.

The Italian 10-year yield fell 10 basis points to 5.48 percent, shrinking the extra yield that investors demand to hold the securities instead of German bunds by 14 basis points to 3.46 percentage points.

Spain’s 10-year yield declined four basis points to 5.18 percent, after rising 15 basis points yesterday.

Spanish and Italian bonds have rallied since the the ECB offered unlimited three-year cash to the region’s banks in December to avoid a credit crunch. The central bank will offer a second round of loans on Feb. 28, with allotment a day later.

Euribor

The rate at which European banks say they see each other lending in euros for three months dropped for a 36th day, the longest run of declines in 2 1/2 years, as record borrowing at the central bank’s three-year tender eased funding costs.

The euro interbank offered rate, or Euribor, for such loans dropped 0.7 basis point to 1.07 percent, according to data from the European Banking Federation. That’s the longest run of losses since August 2009, and is the lowest since January 2011, according to data compiled by Bloomberg.

The rate has fallen every day since the ECB allotted 489 billion euros to 523 banks on Dec. 21.

Germany’s bonds have declined 0.8 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Italian securities gained 8.4 percent and Spanish debt returned 1.4 percent, the indexes show.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.