German Debt Declines After Auctions; Greek Yield Reaches Record

German two-year bonds fell as a measure of inflation in Europe’s largest economy accelerated to the fastest pace in more than 29 years last month and the nation sold 30-year debt.

Greek 10-year bond yields reached a record and two-year yields gained 50 basis points after Germany’s Zeit newspaper reported that a restructuring of Greek sovereign debt could involve imposing losses of between 50 percent and 70 percent on investors. Reports showed German wholesale prices rose 10.9 percent in March from a year earlier, while European industrial production gained 0.4 percent in February.

“Supply is weighing a bit on the market because, from yesterday until Thursday, there’s a lot of supply coming through,” said Peter Schaffrik, head of European fixed-income strategy at RBC Capital Markets in London.

The yield on the two-year German note was one basis point higher at 1.86 percent as of 5:37 p.m. in London. The 1.5 percent security maturing in March 2013 fell 0.015, or 15 euro cents per 1,000-euro ($1,447) face amount, to 99.325. The 10-year bund yield was little changed at 3.44 percent, after earlier rising to 3.47 percent. Earlier this week, it reached 3.50 percent for the first time since Aug. 13, 2009.

Germany sold 1.67 billion euros of 30-year debt at an average yield of 3.93 percent, up from 3.58 percent at an auction in January. Investors demanded 1.5 times the debt on sale, up from a so-called bid to cover ratio of 1.2 at the previous offering. The central bank also sold 2.76 billion euros of seven-year index-linked debt.

Greece, Portugal, Ireland

“Inflation is accelerating, which provides a very supportive context” for the index-linked sale, Khrishnamoorthy Sooben, a fixed-income strategist at Barclays Capital, wrote before the offering.

The 10-year German breakeven rate, a measure of inflation expectations derived from the difference in yield between index-linked bonds and their nominal peers, rose as high as 2.36, within four basis points of a record.

Greek two-year yields surged 51 basis points. Zeit reported that the head of Standard & Poor’s European debt-evaluation team, Moritz Kraemer, said the risk of a Greek restructuring was “almost one in three.”

“We can generate jobs and investments and we are not changing track,” Greek Finance Minister George Papaconstantinou said at a conference in Athens today. Reforms will “lead to growth that will avoid the need for restructuring,” he said.

Greece, Ireland, Portugal

Greek 10-year yields rose five basis points to 12.92 percent after reaching a record 12.96 percent, while Portuguese five-year yields also reached a euro-era high of 10.30 percent. Irish benchmark 10-year bond yields snapped eight days of declines, gaining as much as 21 basis points to 9.30 percent before settling at 9.09 percent.

“People are very negative about Greece, they’re very skeptical,” said Schaffrik. “Nobody believes the official line. Greece is a very different story from the other two. I think Ireland is the most positive story for a number of reasons and Portugal sits in the middle.”

German government bonds have handed investors a 2.8 percent loss this year, while U.S. Treasuries are 0.1 percent lower, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Portuguese debt is the worst performer among the euro-region nations, losing 10.3 percent this year, while Greek bonds have lost 0.8 percent and Irish securities have returned 0.4 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE