German Yields Reach Three-Month High as Greece Wins Bailout Vote
German 10-year bund yields reached a three-month high after Greek Prime Minister Lucas Papademos won parliamentary approval for a 130 billion-euro ($173 billion) bailout, damping demand for safer assets.
Bund yields rose as Germany auctioned 5 billion euros of two-year notes. Dutch bonds fell after an independent agency said the nation’s budget deficit may increase next year, fueling speculation the nation may eventually lose its AAA rating. Portuguese bonds advanced after the country sold 2 billion euros of bills in its first auction in more than a month.
“Several factors are behind the bund sell-off, such as the softening of the sovereign debt crisis,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “I expect the 10-year yield to move towards 2.5 percent,” he said.
The German 10-year yield was little changed at 2.04 percent at 11:51 a.m. London time after rising to 2.07 percent, the highest level since Dec. 13. The 2 percent bond maturing in January 2022 traded at 99.61.
A total of 213 Greek lawmakers voted in favor of the legislation and 79 against, acting parliament speaker Grigoris Niotis said in remarks carried live on state-run Vouli TV. Greece pushed through the biggest sovereign restructuring in history this month after getting private investors to forgive more than 100 billion euros of debt.
Germany sold 5 billion euros of 0.25 percent notes due in March 2014 at an average yield of 0.31 percent, compared with 0.25 percent at the prior auction on Feb. 22. Investors bid for 1.8 times the amount allotted, the same as the previous sale. The nation also sold 2 billion euros of inflation-linked bonds.
“Demand was solid with total bids for 7.25 billion euros,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, wrote in an e-mailed note to clients. “All in all, the line was easily absorbed,” she said, referring to the two-year-note sale.
Dutch bonds fell for a second day after the Netherlands Bureau for Economic Policy Analysis said the country’s deficit would exceed the European Union’s target of 3 percent. The agency said the 2013 deficit would be 4.6 percent, revised from 4.5 percent.
“The market is worried about the Dutch ability to reduce its deficit,” Giansanti said. “There is a thin majority in parliament and the risks for a political crisis are elevated. A political impasse could drive rating actions in the future.”
The Dutch 10-year yield climbed three basis points to 2.58 percent, after rising to 2.62 percent, the highest level since Dec. 7. The difference in yield between Dutch 10-year bonds and similar-maturity German bunds expanded three basis points to 54 basis points.
Volatility in Dutch debt was the highest in euro-area markets today according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.
Portuguese two-year notes rose for a fifth day as borrowing costs fell at a bill auction. The two-year rate dropped 41 basis points to 11.69 percent.
Portugal sold 1.61 billion euros of one-year bills at an average yield of 3.65 percent, down from 4.94 percent at the previous auction on Feb. 15. Investors bid for 2.5 times the amount allotted, compared with a bid-to-cover ratio of 2.02 times last month. The nation also sold 382 million euros of 119- day securities.
German two-year note futures may fall to a three-month low should they break below a key level of so-called support, UBS AG said, citing trading patterns.
The contracts “are bearish while they trade below the 110.15 retracement,” Richard Adcock, head of fixed-income technical strategy at UBS in London, wrote in a research note. “A break below 109.98 will be the next bearish trigger, exposing the market to 109.86, the Dec. 7 low.”
The two-year note contract due in June was little changed at 110.075. Support refers to an area on a graph where technical analysts anticipate buy orders to be grouped.
German bonds handed investors a loss of 1.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Dutch securities fell 1 percent, and Portuguese debt climbed 5.7 percent, the data show.
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