German Bonds Fall as EU Ministers Ease Terms for Greece

Germany’s bonds fell, pushing 10-year yields to the highest level in three weeks, after European finance ministers eased the terms on emergency aid for Greece, damping demand for the region’s safest assets.

Ten-year bund yields climbed the most in a week after the ministers cleared Greece to receive a 34.4 billion-euro ($44.5 billion) loan installment in December and engineered a bond buyback. Greek bonds gained as some investors speculated the buyback will take place at higher prices to entice sellers. Spain’s securities advanced after the nation sold 4.09 billion euros of bills and the Greek deal buoyed sentiment toward borrowers in Europe’s peripheral countries.

“With Greece, there has been severe tightening of spreads,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “The mood is quite positive with regard to the latest outcome” while the Spanish debt sale was “quite supportive,” he said.

The German 10-year yield rose three basis points, or 0.03 percentage point, to 1.44 percent at 5 p.m. London time after reaching 1.47 percent, the highest since Nov. 2. The 1.5 percent bond due in September 2022 dropped 0.235, or 2.35 euros per 1,000-euro face amount, to 100.545.

The two-year rate climbed two basis points to 0.02 percent.

Euro-area finance ministers meeting in Brussels agreed to lower the rates on bailout loans for Greece, suspended the nation’s interest payments for a decade and gave the country more time to repay.

‘Peripherals Stabilize’

“The fate of Greece is no longer a day-in, day-out worry,” Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris, wrote today in a note to clients. “That ought to prove a big relief in time and help other peripherals stabilize.”

The finance ministers said in a statement “any tender or exchange prices” as part of a buyback of Greek securities “are expected to be no higher than those at the close” on Nov. 23.

The price of Greece’s 2 percent bonds maturing in February 2023 climbed 0.645 to 34.94 percent of face value. They were at 34.36 percent on Nov. 23. The yield dropped 26 basis points today to 16.25 percent.

The yield on the nation’s 30-year bond declined 66 basis points to 12.98 percent after falling to 12.95 percent, the lowest since the country’s debt was restructured in March.

“The debt buyback is a very grey area,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Maybe investors are bidding them higher to try and encourage them to push higher the price of the buyback. People are anticipating what price they are going to get and are trying to make the best of it.”

Spanish Auction

Spain’s two-year notes advanced for a sixth day as the country sold three-month bills at an average yield of 1.254 percent, down from 1.415 percent at the previous auction on Oct. 23. It allotted six-month securities at 1.669 percent, versus 2.023 percent last month.

The Spanish two-year yield dropped eight basis points to 2.92 percent after falling to 2.91 percent, the lowest level since Oct. 23. The 10-year yield declined 10 basis points to 5.52 percent.

Italy sold 3.5 billion euros of zero-coupon notes due in 2014 at an average yield of 1.923 percent, the lowest rate since an auction of similar securities in October 2010. Italy also allotted inflation-linked bonds due in 2019 and 2026.

Italy’s two-year note yield dropped two basis points to 1.97 percent.

French Bonds

French bonds advanced for a third day as a report showed a gauge of consumer confidence was unchanged in November, halting four months of declines. French household sentiment held at 84 this month, the national statistics office Insee said in Paris.

The yield on France’s 10-year bonds dropped two basis points to 2.12 percent.

“We do see further normalization at the moment, and core yields are going to grind higher,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “On the data front, it’s still a mixed picture.”

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

The Netherlands sold 2.4 billion euros of 2015 notes at a record-low average-auction yield of 0.129 percent.

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 debt also gained 3.6 percent and Italy’s rose 19 percent.

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