German Bunds Set for Weekly Drop as Greece Nears Deal

Germany’s 10-year bunds extended their first weekly decline in more than a month as optimism European leaders are moving toward a deal to stem Greece’s fiscal crisis damped demand for the safest assets.

Yields on two-year German notes were within two basis points of a three-week high, with euro-area finance ministers set to hold a conference call tomorrow to prepare for a Nov. 26 meeting on an updated aid package for Greece. The European Union, International Monetary Fund and European Central Bank said today they also made “good progress” in talks with Cyprus. Spain’s debt extended a weekly advance after slipping earlier following a bank downgrade by Standard & Poor’s.

“The market has taken a glass-half-full approach on the hope that the Eurogroup will sign off on a deal for Greece,” pushing bunds lower, said Richard McGuire, a senior rates strategist at Rabobank International in London. “There seems to be a broad consensus on how to proceed.”

German 10-year bund yields rose one basis point, or 0.01 percentage point, to 1.44 percent at 4:31 p.m. London time, after rising to 1.45 percent, the highest since Nov. 7. They were set for an 11 basis-point advance in the week. The 1.5 percent bond maturing in September 2022 fell 0.085, or 85 euro cents per 1,000-euro ($1,297) face amount, to 100.54.

The two-year note yield was little changed at zero percent after rising to 0.017 percent yesterday, the most since Nov. 2.

Greek Negotiations

Greece, facing a sixth year of recession in 2013, has been negotiating with the euro area and International Monetary Fund over the steps needed to qualify for the release of loan instalments frozen since June. At stake is whether the Greek government of Prime Minister Antonis Samaras can pay its bills, recapitalize domestic banks and stay in the 17-nation euro.

The main obstacle to unlocking international loans is a plan to reduce the interest rates charged by euro-area creditors as, a Greek official told reporters late yesterday in Brussels on the condition of anonymity.

Yields on Greece’s 10-year bonds were set for their biggest weekly decline since Sept. 7, having fallen more than 1 percentage point to 16.47 percent.

Spanish 10-year yields fell four basis points today to 5.62 percent. They have fallen 25 basis points in the week.

S&P earlier today lowered the ratings on Confederacion Espanola de Cajas de Ahorros, Ibercaja Banco SAU and Bankinter SA, while affirming grades for another 12 Spanish banks. The New York-based firm cut Spain two levels to BBB-, one step above junk, on Oct. 10.

Spanish bonds returned 3.4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt also earned 3.4 percent and Italian securities gained 18 percent.

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