Spanish bonds slumped, pushing 10-year (GSPG10YR) yields above 6 percent, as Greek leaders struggled to form a new government amid speculation they may decide to withdraw the nation from the single currency bloc.
German bund yields dropped to records, with the 10-year rate falling below 1.5 percent for the first time, as signs the euro-area debt crisis is worsening boosted demand for the region’s safest assets. The extra yield investors demand to hold Spain's 10-year bonds instead of similar-maturity bunds reached the widest in five months, while the spread between French and Spanish yields expanded to the most since 1996. Germany got bids for more than its maximum target at a five-year note sale today.
“Investors are worried about Greece, are worried about political risk in the euro zone, which is obviously supporting bunds,” said Michael Leister, a rates strategist at DZ Bank AG in Frankfurt. “In turn we see widening spreads and higher yields in the periphery as euro-zone investors put their funds into German assets.”
Spain’s 10-year yield rose 24 basis points, or 0.24 percentage point, to 6.08 percent at 4:39 p.m. London time after climbing above 6 percent for the first time since April 27. The 5.85 percent bond due in January 2022 fell 1.695, or 16.95 euros per 1,000-euro face amount, to 98.32.
The extra yield investors demand to the securities instead over 10-year bunds widened 26 basis points to 457 basis points after reaching 459 basis points, the most since Nov. 23.
“The big level for Spain 10-years is clearly 6 percent,” Leister said. “If we sustain a couple of sessions above 6 percent I can easily imagine yields at 6.25-6.50 percent.”
Italian 10-year yields climbed 14 basis points to 5.6 percent, with the spread over bunds increasing 16 basis points to 407 basis points. The gap reached a record 575 basis points on Nov. 9.
Alexis Tsipras of Greece’s Syriza party, said he expected Antonis Samaras of New Democracy and Evangelos Venizelos of Pasok, to send a letter to the EU revoking their written pledges to implement austerity measures by the time he meets them today to discuss a government alliance. Samaras and Venizelos rejected the request.
Tsipras said he aimed to link up with parties that would nationalize banks, place a moratorium on debt payments and cancel the bailout and measures such as labor reforms and pension cuts.
European Central Bank Executive Board member Joerg Asmussen said Greece can’t renegotiate its fiscal reform program if it wants to keep the euro, Handelsblatt newspaper reported, citing an interview.
Germany’s 10-year bond yield dropped two basis points to 1.52 percent after declining to a record 1.498 percent. The 30-year yield fell to an all-time low 2.217 percent, while the two-year rate declined to a record 0.062 percent.
French bonds declined, with the 10-year yield rising four basis points to 2.86 percent.
The spread between France’s 10-year bonds and similar maturity Spanish debt still expanded 19 basis points to 3.22 percentage points, the widest since March 1996, according to data compiled by Bloomberg based on closing prices.
“Greece is driving spreads higher,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “The odds that Greece will leave the euro are soaring due to the increased power of anti-euro political parties.”
Germany got bids of 5.8 billion euros for the new five-year notes it sold today, compared with a maximum target of 5 billion euros. The government sold 4.032 billion euros of the securities at an average yield of 0.56 percent.
German 10-year bund futures also reached a record. The contract expiring in June gained 0.2 percent to 142.73 after rising to 143.03, the highest since Bloomberg began compiling data in 1990.
Volatility on Spanish government debt was the highest in euro-area markets today followed by Italian securities, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The change in the Spanish 10-year yield was 3 times the 90-day average.
Credit-default swaps insuring Spanish debt rose 19 basis points to a record 518, according to data compiled by Bloomberg. Contracts on Italian debt climbed 18 basis points to 464 basis points, while default swaps on France increased seven basis points to 211 basis points.
German bunds have returned 2.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities slipped 1.1 percent, and Italian bonds gained 10.3 percent.
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