Bond Investors Look to Euro Leaders’ Summit as Greek Deal Eludes

Notch up another week of frustrated efforts to end Greece’s impasse with creditors. Investors in euro-region bonds are now focusing on an emergency summit of government leaders to be held in Brussels on June 22.

There are signs of lingering optimism that a deal is still achievable and that contagion risks from Greece can be managed. Those are reflected in Italian 10-year bonds. They increased in all but one day this week, curbing the weekly gain in yield to less than 0.1 percentage point. Germany’s 10-year securities, perceived to be the region’s safest, rose even before data that are forecast to add to evidence of an economic recovery in the region, with the debt also supported by a lack of new supply.

“We are seeing a bit of a correction of spreads versus bunds but the widening trend that started mid-March is still intact,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. Data releases this week “may impact the market at least temporarily,” he said.

Italy’s 10-year bond yield rose seven basis points, or 0.07 percentage point, to 2.28 percent as of 5 p.m. London time on Friday. The 1.5 percent security due June 2025 fell 0.55, or 5.50 euros per 1,000-euro ($1,131) face amount, to 93.195. The yield has settled back from the seven-month high of 2.46 percent it touched on June 16.

Spain’s 10-year yield rose two basis points in the week to 2.27 percent, while Germany’s slipped eight basis points to 0.75 percent.

Tsipras Conciliatory

After a meeting of finance ministers broke up in acrimony on Thursday, Greek Prime Minister Alexis Tsipras was more conciliatory on Friday, saying he was confident a rescue agreement is achievable. French Finance Minister Michel Sapin had said a day earlier that there isn’t “a monstrous difference between the two sides.”

The Athens Stock Exchange bounced back on Friday from its lowest level since 2012 reached the previous day, after the European Central Bank raised the maximum amount of emergency funding that Greek banks can access, before the leaders’ meeting that may determine the nation’s future in the euro.

Reports on June 23 will show that manufacturing and services industries in the euro area stayed above the 50 level that marks the difference between growth and expansion in June, according to a Bloomberg survey of economists.

Belgium and the Netherlands are due to sell bonds next week, while France, Spain and Italy auction treasury bills. Italy is also scheduled to sell inflation-linked bonds on June 25.

The “summer lull in bond issuance is already beginning,” said Daheim.

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