German Bonds Seen Resilient as Greece Talks Produce False Dawns

Greece’s failure to win an accord with creditors to access bailout funds sent German government bonds higher for a second week. Their appeal as a haven offered the prospect of further gains in the coming week.

Investors are waiting for confirmation that Europe’s most-indebted nation will make its next payment to the International Monetary Fund on June 5. Greek government officials said they were optimistic a deal with international creditors can be reached soon, while German Finance Minister Wolfgang Schaeuble said those positive reports “aren’t fully reflected” by the state of the talks. Spanish bonds fell this week after anti-austerity parties made unprecedented gains in local elections on May 24.

“I can’t see the market changing direction” in the early part of next week, said Christoph Rieger, the Frankfurt-based head of fixed-income strategy at Commerzbank AG, which is ranked first among dealers by Germany’s debt agency. “In absence of an all-clear from Greece, which I think is very unlikely, people in doubt prefer” lower bund yields.

The yield on 10-year German bonds dropped 12 basis points, or 0.12 percentage point, to 0.49 percent at 5 p.m. London time this week. The 0.5 percent security due in February 2025 rose 1.1, or 11 euros per 1,000-euro ($1,099) face amount, to 100.12.

“We stick with our technical longs regarding the outright bund market,” Commerzbank’s Rieger said. “We are more defensive on spreads in general and peripheral sovereigns in particular.” A long position is a bet an asset’s value will rise.

Greek Assertion

Greece owes the IMF about 1.6 billion euros in repayments over the next month. Economy Minister George Stathakis said the country will meet the next payment. “The country has been servicing its loans through internal resources for the past year. It will do the same this time,” he was cited as saying in interview with Real News newspaper.

Negotiations aren’t progressing fast enough to conclude them any time soon, French Finance Minister Michel Sapin said in an interview with Bloomberg in Dresden on Friday.

While all sovereign-debt markets tracked by Bloomberg World Bond Indexes made a loss in the past month, signs of stability in the rest of the euro area have emerged. Analysts at Barclays Plc said a repeat of May’s selloff in German bunds is unlikely in the near future, while BNP Paribas SA recommends positioning for a further decline in yields.

Next week, European Central Bank policy makers will meet to decide on interest rates followed by a press conference with President Mario Draghi. The euro area’s annual inflation rate rose to 0.2 percent in May, the first increase this year, according to the median estimate of economists surveyed by Bloomberg before the data are published on June 2.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE