German Bunds Advance on Greece Stalemate; Yields Drop to Records
German bunds advanced, pushing yields down to records, as Greek political leaders struggled for a second day to form a new government after inconclusive elections on the weekend.
Five-, 10- and 30-year German yields all dropped to all- time lows after Greek borrowing costs increased for the first time this year at a bill sale, boosting demand for the euro- region’s safest securities. Italian and Spanish bonds declined as stocks slid around the region amid concern the debt crisis is worsening. The Netherlands, Austria, Belgium and the European Financial Stability Facility all sold debt today.
“There remains considerable uncertainty regarding the political outcome in Greece” and “bunds are likely to be one of the main beneficiaries,” said Brian Barry, an analyst at Investec Bank Plc in London. “So long as there remains considerable uncertainty over the growth outlook and sustainability of public finances for many of the euro-zone sovereigns, then bunds are likely to remain well bid.”
The German 10-year yield dropped six basis points, or 0.06 percentage point, to 1.54 percent at 5 p.m. London time after declining to 1.532 percent, the lowest since Bloomberg began collecting the data in 1989. The 1.75 percent bond due in July 2022 gained 0.59, or 5.90 euros per 1,000-euro ($1,300) face amount, to 101.935.
The five-year yield fell five basis points to 0.53 percent after sliding to a record 0.521. The 30-year yield dropped to as low as 2.243 percent.
Greek political leaders are meeting again today to try to form a government after New Democracy’s Antonis Samaras, who won the most seats in Parliament, said he was unable to forge a coalition. The stalemate is fueling investor concern about the country’s ability to adhere to the terms of its European Union bailout and remain in the single currency.
Greece sold 26-week bills at a yield of 4.69 percent, up from 4.55 percent at the previous auction on April 10. Investors bid for 2.6 times the amount allotted, compared with 2.62 times last month, the Public Debt Management Agency said.
The yield on the Greek 2 percent bond due in February 2023 jumped 15 basis points to 23.13 percent.
“The commitments on deficit reduction that every country in Europe has undertaken will be upheld also by France,” Schaeuble said in an interview broadcast late yesterday on Germany’s ARD television channel. “I have absolutely no doubt about that. How France puts together its budget within the framework of the European commitments is up to them.”
The French 10-year bond yield climbed two basis points to 2.81 percent. It earlier slid to 2.76 percent, the lowest level since March 2.
The Dutch 10-year yield fell four basis points to 2.11 percent as the Netherlands sold 2.5 billion euros of the securities. Austria auctioned 1.1 billion euros of debt due in February 2017 and November 2022. Belgium and the European Financial Stability Facility sold bills.
German bonds have returned 1.7 percent this year, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies show. French debt gained 3.3 percent.
German 10-year bund futures advanced to a record high 142.64 after UBS AG said they could rise to 144.04 should they climb above their last record high of 142.44, citing trading patterns.
The contracts may reach that level, which represents a 200 percent extension of their rally from an April 25 low, according to Richard Adcock, head of fixed-income technical strategy in London, referring to Fibonacci analysis, before the futures touched today’s record.
“Bunds are bullish while they trade above the 141.52 retracement and as long as this remains the case the expectation is for limited corrections and further price strength,” Adcock wrote in a note to clients.
The 10-year contract expiring in June gained 0.4 percent to 142.53. Fibonacci analysis is based on the theory that prices advance or decline by certain percentages after reaching a new high or low.
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