German Bunds Rise as Cyprus Tax Debate Starts; Greek Bonds Slump
German 10-year government bonds climbed for a fourth day as Cypriot lawmakers began to debate a proposed levy on bank deposits, amid concern they will reject the measure that’s needed to unlock an international bailout.
Benchmark 10-year bund yields dropped to an 11-week low after Cyprus’s President Nicos Anastasiades said the nation’s parliament is likely to vote against the plan, prompting investors to seek the safety of Europe’s highest-rated fixed- income assets. The country’s finance minister submitted his resignation, Market News reported. Greek and Cypriot bonds tumbled, and Spanish securities also fell as investors sold the debt of so-called peripheral nations.
“The Cypriot parliament is meeting to attempt to vote on the package but it seems from what is coming out of Cyprus that it’s not likely to get through,” said Owen Callan, an analyst at Danske Bank A/S (DANSKE) in Dublin. “We are in a risk-off mode and bunds are going higher. There are suggestions that the finance minister has tendered his resignation but it hasn’t been accepted. No one is really sure what the route out of this is at this juncture.”
German 10-year bund yields fell six basis points, or 0.06 percentage point, to 1.35 percent at 5 p.m. London time, after reaching 1.34 percent, the lowest since Jan. 2. The 1.5 percent security due February 2023 rose 0.565, or 5.65 euros per 1,000- euro ($1,286) face amount, to 101.415.
The two-year note yield slid two basis points to 0.002 percent after dropping to minus 0.006 percent, also the lowest since Jan. 2.
Defense Minister Fotis Fotiou told Greek Skai TV the Cypriot government is working on different scenarios to raise the 5.8 billion euros set as a condition for a bailout, including a backup plan if the vote isn’t passed.
The debate was televised on state-run RIK TV, which reported that a vote on the bill will immediately follow at around 8 p.m. local time.
Finance chiefs from the euro region told Cyprus yesterday that it must raise money from bank depositors to unlock emergency loans, while suggesting it could spare small-scale savers. The island nation’s banks and stock exchange will remain closed at least until March 21.
The “feeling I’m having is that the house is going to reject it because they feel and think it isn’t just and that it’s against the interest of Cyprus, at large,” Anastasiades told Sweden’s TV4 channel in an interview today when asked about the proposed bank tax.
Cyprus’s government bonds slumped, pushing the yield on the 4.625 percent security due February 2020 up 211 basis points to 12.34 percent. That’s the highest since Jan. 17, based on closing-market data compiled by Bloomberg. The bid price for the securities was 65.563, while the offer price was 68.985.
The yield on Cypriot notes due in November 2015 surged 567 basis points to 19.07 percent.
Greek bonds fell for a seventh day, the longest streak since Nov. 2, pushing the 10-year yield up as much as 85 basis points to 12.12 percent, the highest level since Dec. 20.
Bunds outperformed all their euro-area peers amid speculation the Cypriot bailout model may be applied to other euro-area nations requesting aid.
“Decisions like this, much like the decision to haircut Greek debt in October 2011, actually benefits some countries,” said former Cypriot central bank governor Athanasios Orphanides in an interview on Bloomberg Television’s “Surveillance” with Tom Keene. “A decision like this reduces the financing costs for the German government so the German government can now borrow at negative rates as a result, while it inflicts pain on other countries.”
Spain’s 10-year yields rose eight basis points to 5.04 percent. The securities have fallen for five days, the longest run since July. The yield reached 5.08 percent yesterday, the most since March 5.
The rate on similar-maturity Italian bonds climbed nine basis points to 4.73 percent.
Volatility on Portuguese bonds was the highest in euro-area markets today, followed by those of Finland and Germany, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
The Netherlands sold 6.52 billion euros of new 10-year bonds at an average yield of 1.83 percent. Greece and Spain auctioned bills.
Germany plans to sell an additional 4 billion euros of benchmark 10-year bunds tomorrow. Europe’s largest economy last sold 10-year debt at an average yield of 1.66 percent on Feb. 20. That compares with a record-low auction yield of 1.31 percent set on July 11. Portugal is scheduled to sell bills.
Germany’s bonds handed investors a return of 0.3 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 0.6 percent, while Spanish securities returned 0.7 percent.
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