German Bonds Rise as Wrangling Over Greece Preoccupies Investors

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German bonds advanced and Greece’s securities fluctuated as investors grew impatient over lack of progress on a funding deal for Europe’s most-indebted nation.

The yield on 10-year bunds grazed its lowest level in three weeks as Group-of-Seven finance chiefs meeting in Dresden, Germany, urged a resolution to the Greek crisis and pushed back against claims from its government that an agreement was near.

“Everyone is still focusing on Greece,” said Owen Callan, a fixed-income strategist at Cantor Fitzgerald LP in Dublin. “There’s a constant two-steps-forward, one-step-back game we’re playing, and we’re seeing moves on the back of that. That’s the focal point.”

The yield on 10-year German bunds dropped two basis points, or 0.02 percentage point, to 0.53 percent as of 5 p.m. London time, and earlier touched to 0.511 percent, the lowest since May 5. The 0.5 percent security due in February 2025 rose 0.225, or 2.25 euros per 1,000-euro ($1,093) face amount, to 99.715.

Delegates at the meeting of G7 finance chiefs called for stronger efforts to resolve the standoff. Time is running out for the Mediterranean nation to receive funding before almost 1.6 billion euros in International Monetary Fund payments scheduled for next month, with the first transfer due June 5.

The yield on Greek two-year notes declined 19 basis points to 23.42 percent. It earlier advanced as much as 29 basis points and slipped as much as 47 basis points.

Contagion Comment

A failure to reach agreement on Greece’s aid program soon may drive yields on bonds issued by other euro-area countries higher, the European Central Bank said.

“In the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro-area sovereigns could materialize,” the ECB said in its twice-yearly Financial Stability Review published Thursday in Frankfurt.

The central bank said the “lengthy and uncertain process of negotiations between the newly formed Greek government and its creditors” has already contributed to bouts of extreme volatility in Greek markets.

Worst Performer

Greek securities dropped 4.1 percent this year through Wednesday, the worst-performing sovereign debt in the Bloomberg World Bond Indexes.

“There’s a certain amount of safe-haven flows into core bond markets in Europe,” David Stubbs, a global market strategist at JPMorgan Asset Management Inc. in London, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “We’re still many weeks away from actually the pinch point here, there’s still many games that can be played. The Greeks are using the threat of what could happen if they default and leave as an effective bargaining tool.”

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