Greek Bonds Erase Drop on Deficit Comments as Spain’s Bonds Rise

Greece’s 10-year yields erased their biggest increase in a month as lawmakers gave conflicting messages about whether the nation had won more time to reduce its deficit.

Spanish 10-year securities rose for the first time in four days as the Greek securities rebounded. German Finance Minister Wolfgang Schaeuble said he had “no new knowledge” of a possible extension to Greece’s budget deadline, after Greek Finance Minister Yannis Stournaras told lawmakers in Athens a two-year extension had been achieved. Germany attracted bids for more than its maximum target at a 10-year debt sale.

“There’s some positive news in the market and although it’s being denied, Greek bonds appear to be assuming there is no smoke without fire,” said Peter Chatwell, a strategist at Credit Agricole Corporate & Investment Bank in London. “The common view is that Greece’s debt is beyond the point of sustainability so some form of debt relief has to materialize. So the reports strike a chord with that way of thinking.”

The yield on 10-year Greek bonds fell three basis points, or 0.03 percentage point, to 17.02 percent at 4:47 p.m. London time after rising as much as 75 basis points to 17.79 percent, the biggest jump since Sept. 24. The 2 percent security maturing in February 2023 rose 0.095, or 95 euro cents per 1,000-euro ($1,296) face amount, to 32.8.

Manufacturing, Services

Greek and Spanish bonds earlier dropped after reports added to evidence the regional debt crisis is slowing growth.

A composite index based on a survey of purchasing managers in manufacturing and services in the euro area fell to 45.8 in October from 46.1 the previous month, London-based Markit Economics said. Economists surveyed by Bloomberg forecast an increase to 46.5. A reading below 50 indicates contraction.

The yield on 10-year Spanish bonds fell five basis points to 5.58 percent after rising as much as seven basis points to 5.69 percent. Germany’s 10-year bond yield was little changed at 1.56 percent

Germany’s debt agency received bids of 5.06 billion euros for the September 2022 bonds it auctioned today, surpassing its maximum target for the sale of 4 billion euros. The securities were allotted at an average yield of 1.56 percent, versus 1.52 percent at the prior sale on Sept. 26.

The head of Europe’s permanent rescue fund, Klaus Regling, said it still had 28 billion euros of the 32 billion euros paid in so far to invest by the end of November.

ESM Purchases

The European Stability Mechanism has invested 4 billion euros in “highly rated” government bonds and the debt of international institutions, Regling said yesterday in a Bloomberg Television interview in Luxembourg. The ESM became operational on Oct. 8 and will rely on paid-in capital by European governments to underpin its firepower of 500 billion euros.

Volatility on Finnish bonds was the highest in the euro- region markets today, followed by Portugal, according to measures of 10-year or equivalent-maturity debt, the spread between two-and 10-year securities, and credit default swaps.

German bonds returned 2.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities rose 2.6 percent, while Italy’s made 17 percent.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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