German Bunds Fall as Greece, Portugal Progress Damps Safety Bid
Bunds dropped for the first time in three days after the International Monetary Fund completed its latest review of Portugal’s economic program yesterday, effectively freeing up 1.5 billion euros ($1.94 billion) of aid for disbursement. Spanish bonds fell as the government said it will extend its rescue of cash-strapped regions next year, as Andalusia called for help raising funds and the region of the capital Madrid canceled a debt sale.
“Risk markets have stabilized after the recent selloff, dampening the safe-haven bid for core government bonds,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Portugal has gained its latest tranche of funding whilst Greece seems to be closer to an agreement on fiscal and structural reforms, increasing the likelihood of more funding.”
Germany’s 10-year yield rose three basis points, or 0.03 percentage point, to 1.58 percent at 5 p.m. in London after climbing to 1.66 percent on Oct. 18, the highest level since Sept. 19. The 1.5 percent bond due in September 2022 fell 0.24, or 2.40 euros per 1,000-euro face amount, to 99.25.
Greece will get a loan of as much as 20 billion euros to supplement its second rescue package, Handelsblatt reported, citing a Memorandum of Understanding from the so-called troika of the European Commission, the European Central Bank and the IMF. The loan plan allows Greece an extra two years until 2016 to meet its deficit target, the German newspaper said.
“Issues remain to be ironed out before we can” conclude a staff-level agreement between Greece and the troika, EU spokesman Simon O’Connor said in an e-mailed statement.
The IMF’s review of Portugal was the fifth in a program that is backed by a three-year loan of 28.2 billion euros. The executive board’s approval brings total IMF disbursements to the country to 21.8 billion euros.
Bunds also dropped along with Treasuries and U.K. gilts after reports showed U.S. durable goods orders increased last month and Britain posted its strongest growth in five years in the third quarter.
The Treasury 10-year yield climbed two basis points to 1.81 percent, and similar-maturity U.K. yields jumped six basis points to 1.91 percent.
The Spanish Treasury will sell debt to finance regions that ask for assistance next year, according to a spokesman for the Economy Ministry who asked not to be named in line with policy. Details need to be worked out for the program, which will add to the planned 207 billion euros of 2013 gross issuance, the spokesman said.
Spain’s central government has already bailed out the regions with more than 40 billion euros this year as most of the 17 states were locked out of public debt markets.
The yield on Spain’s 10-year bond climbed five basis points to 5.62 percent.
Greek 10-year yields rose nine basis points to 17.10 percent after falling to 16.22 percent on Oct. 22, the lowest level since the nation’s debt was restructured in March. The price of the 2 percent bond maturing in February 2023 was at 32.62 percent of face value.
There’s still value in Greek bonds, although they aren’t for the fainthearted, said Padhraic Garvey, head of developed markets debt strategy at ING Groep NV in Amsterdam. The nation’s 10-year bond may increase in price by 25 percent before it begins to “stall out,” he said.
The Portuguese 10-year bond yield was little changed at 7.84 percent.
Volatility on German bonds was the highest in euro-area markets today, followed by those of Austria, 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 2.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Portuguese securities advanced 50 percent, while Italy’s rose 17 percent.