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German Yield Falls Below Zero on Greece Vote; Spanish Bonds Drop

Nov. 5 (Bloomberg) -- German government bonds rose, pushing two-year note yields below zero for the first time in two months, as Greece prepared for a vote as soon as this week on austerity measures needed to keep the nation in the euro.

Ten-year bund yields fell to the lowest level in more than five weeks as Greek Prime Minister Antonis Samaras struggled to win political support for the measures needed to assure the country’s financial lifeline. Spanish bonds declined for a second day after a report showed jobless claims rose the most in nine months in October. The country is scheduled to sell a combined 4.5 billion euros ($5.75 billion) of debt with maturities of up to 20 years this week.

“The market is clearly in a more negative sentiment and we can see Spanish yields creeping higher again,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. Greece is “approaching a more decisive phase again and investors will look for safety until we get past those hurdles,” he said.

Germany’s two-year yield fell one basis point, or 0.01 percentage point, to minus 0.01 percent at 4:53 p.m. London time after dropping to minus 0.014 percent, turning negative for the first time since Sept. 6. The zero percent note due in September 2014 rose 0.03, or 30 euro cents per 1,000-euro face amount, to 100.01.

A negative yield means investors who hold a security until it matures will receive less than they paid to buy it. The benchmark 10-year bund yield declined two basis points to 1.43 percent after reaching 1.42 percent, the lowest level since Sept. 28.

Last Package

Samaras said yesterday that the planned wage and pension cuts in the latest austerity package would be the last and Greek society won’t tolerate any more, according to comments made to lawmakers of his New Democracy party in Athens.

Politicians in Greece’s coalition government are debating debt-reduction measures demanded by the European Union as the country seeks a 31 billion-euro financing tranche this month. The amount is part of a 130 billion-euro package approved this year after an initial 110 billion-bailout in 2010. The first parliamentary vote in Athens may come as early as Nov. 7.

The yield on Greece’s 2 percent bond due in February 2023 fell 34 basis points to 17.85 percent after jumping 90 basis points last week. The price was at 31.04 percent of face value.

Spain’s bonds declined after the Labor Ministry said jobless claims increased by 128,242 in October, the biggest increase since January.

The nation’s 10-year yield climbed nine basis points to 5.75 percent after touching 5.77 percent, the highest level since Oct. 17.

Spain is scheduled to sell bonds due in October 2015, January 2018 and July 2032 on Nov. 8.

Presidential Election

Bunds were little changed relative to their U.S. Treasury counterparts before American voters choose between President Barack Obama and challenger Mitt Romney in tomorrow’s election.

German 10-year bonds yielded 25 basis points less than Treasury notes with a similar maturity. The spread has widened from 20 basis points two weeks ago.

Economic confidence in the euro area fell for an eighth month in October, the European Commission in Brussels said Oct. 30. The European Central Bank meets to review interest rates on Nov. 8. Reports tomorrow will show manufacturing and services industries in the region contracted last month, according to Bloomberg surveys of economists.

“There doesn’t seem to be any kind of pickup in the economic momentum and that’s also hitting Germany stronger than it was previously and if we have to assume that policy will remain loose, it explains why bund yields” are falling, said Michael Markovich, head of global interest-rates research at Credit Suisse Group AG in Zurich. “We continue to have these questions” about Greece and Spain, he said.

Most Volatile

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

The Netherlands and France both sold bills today.

German bonds have returned 3.5 percent this year through Nov. 2, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 3 percent and Italy’s earned 17 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at

To contact the editor responsible for this story: Paul Dobson at

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