Greek Yields Fall to Lowest Since Debt Swap; German Bonds Drop

Greek government bonds rose, pushing 10-year yields to the lowest level since the nation’s debt was restructured in March, after German Finance Minister Wolfgang Schaeuble said a Greek default “will not happen.”

Germany’s bonds declined before a report tomorrow that economists said will show investor confidence improved this month, damping demand for Europe’s safest securities. Spain’s securities fell as the nation held off requesting a bailout before European Union leaders gather for a summit in Brussels on Oct. 18-19. France auctioned 7 billion euros ($9.06 billion) of bills today and the Netherlands sold 2.1 billion euros of 106-and 194-day securities.

“Most important are the comments Schaeuble made over the weekend, basically ruling out a sovereign default for Greece and dismissing any speculation Greece will exit the euro area,” said Norbert Aul, a rates strategist at Royal Bank of Canada in London. “This is a pretty clear commitment by the German finance minister so should be the key reason for the performance of Greek yields today.”

The yield on Greece’s 10-year bond fell 47 basis points, or 0.47 percentage point, to 17.58 percent at 4:36 p.m. London time after dropping as low as 17.38 percent. The 2 percent security due in February 2023 climbed 1.01, or 10.1 euros per 1,000-euro face amount, to 31.435.

‘Serious Reforms’

“It will not happen that there will be a ‘Staatsbankrott’ in Greece,” Schaeuble said at a forum in Singapore yesterday. “Greece has had to take a lot of very serious reforms” and an increasing majority of the population “does understand that being a member of the common European currency is in the best interest of Greece,” he said.

German investor confidence climbed to minus 14.9 this month from minus 18.2 in September, according to the median forecast of 36 economists in a Bloomberg News survey before tomorrow’s report from the ZEW Center for European Economic Research.

The 10-year bund yield rose three basis points to 1.48 percent. The nation’s two-year note yields added one basis point to 0.05 percent.

“German 10-year yields remain very much stuck in the range we’ve been trading for the past couple of weeks with 1.40 percent to the downside and 1.60 percent to the upside,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “We expect them to stay in this range until the summit” of EU leaders this week.

Leister said he expected the yield to rise to 1.70 percent by year-end.

Spain Efforts

Spanish bonds slumped, with the 10-year yield climbing 19 basis points to 5.82 percent. The nation is set to sell 4.5 billion euros of securities maturing in 2015, 2016 and 2022 on Oct. 18, after it auctions a similar amount of bills tomorrow.

Financial markets have yet to appreciate the efforts made by Spain’s government to return to sustainable public finances, Schaeuble also said yesterday.

The nation’s 10-year yield fell six basis points last week amid speculation the country will seek financial assistance, which is needed before the European Central Bank can step in to buy its bonds.

Spain wants there to be consensus among European governments on any bailout request before deciding whether to ask for help, Deputy Prime Minister Soraya Saenz de Santamaria said on Oct. 11.

“It behooves the Spanish and their partners to take each step very carefully given what’s at stake, but what the market’s convinced of is that at some point you do have that backstop” from the ECB, Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London, said in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson.

Italian Bonds

Italy plans to sell inflation-linked bonds due October 2016 this week. The debt will be issued with a minimum coupon of 2.55 percent, according to a person familiar with the offering, who asked not to be identified because terms aren’t set.

Italian bonds were little changed, with the 10-year yield at 4.98 percent.

France auctioned three-month bills at a record-low average yield of minus 0.023 percent, compared with minus 0.018 percent on Oct. 8. The nation also sold debt due in 154 and 364 days.

German bonds returned 3.4 percent this year through Oct. 12, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities advanced 4.3 percent, while Italian debt rose 16 percent.

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