Greek Debt Leads Advance on Bailout Optimism

Greece’s bonds rose for a second day on optimism the nation’s creditors will agree on an aid plan after European Union Economic and Monetary Affairs Commissioner Olli Rehn said a deal needs to be reached in the next week.

Spanish and Italian securities gained for the first time in three days amid optimism a Greek accord would boost demand for Europe’s lower-rated assets. Austria’s bonds advanced as the country sold debt at record-low yields. German 10-year bunds halted a four-day gain as U.S. voters go to the polls to decide whether President Barack Obama or challenger Mitt Romney will guide the world’s biggest economy for the next four years.

“There is anticipation of a positive outcome from Greece’s parliament and talk about a potential debt buyback,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “That helps support demand for peripheral bonds. People are also watching the U.S. election.”

Greece’s 10-year yield dropped 63 basis points, or 0.63 percentage point, to 17.22 percent at 4:46 p.m. London time. The 2 percent bond due in February 2023 rose 1.395, or 13.95 euros per 1,000-euro ($1,279) face amount, to 32.435.

Italy’s 10-year yields declined 10 basis points to 4.89 percent, while Spain’s fell 10 basis points to 5.66 percent.

Austerity Measures

Euro-region leaders must agree on a way forward for Greece by Nov. 12, Rehn said yesterday at a meeting of Group of 20 finance chiefs in Mexico City.

Greek lawmakers must ratify a bill of austerity measures to ensure speedy payment of the next bailout tranche and avoid bankruptcy, Finance Minister Yannis Stournaras told parliament’s finance committee today. Prime Minister Antonis Samaras must face down dissent within his three-party coalition to get the measures approved.

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

Austria auctioned 660 million euros of 10-year bonds at an average yield of 1.888 percent, the country’s debt agency said. The nation also sold 660 million euros of seven-year notes at an average yield of 1.218 percent.

The yield on the nation’s 10-year bond fell five basis points to 1.89 percent after dropping to 1.88 percent, the lowest since Aug. 3.

German Bunds

German bunds were little changed even after a report showed the factory orders fell the most in a year in September as Europe’s sovereign-debt crisis and slowing economic growth prompted companies to reduce investment.

Manufacturing bookings slumped 3.3 percent from August, when they dropped a revised 0.8 percent, the Economy Ministry said in Berlin.

The benchmark 10-year bund yielded 1.44 percent, while the two-year note yield was also little changed, at minus 0.01 percent. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.

“We are bearish on euro-area growth and yields are likely to stay low in core countries like Germany,” said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. “Core bonds are also underpinned by risk reduction into the year-end and the uncertainty ahead of the U.S. election.”

German bonds returned 3.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 2.5 percent and Austria’s rose 8.7 percent.

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