German Bunds Rise as Europe Withholds Aid for Greece; Spanish Bonds Fall
German bunds rose, pushing yields down the most in two months, after European finance ministers held back a rescue package for Greece, increasing pressure on politicians in Athens to ratify new austerity measures.
German 10-year yields fell from yesterday’s eight-week high as Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece is missing its targets. George Karatzaferis, the leader of the Laos party supporting the government in Athens, said he couldn’t support an austerity accord needed for a bailout. Spanish bonds had their biggest weekly drop since Jan. 6 and Italy’s 10-year debt fell for the first time this week.
“Bunds are higher on safe-haven demand,” said Huw Worthington, a fixed-income strategist at Barclays Capital in London. “Greece has to approve measures this weekend and commit to those, and the delay is making the market a little nervous.”
The German 10-year bund yield dropped nine basis points, or 0.09 percentage point, to 1.92 percent at 4:24 p.m. London time. That’s the biggest drop since Dec. 14. The rate rose to 2.05 percent yesterday, the highest since Dec. 13. The 2 percent bond due in January 2022 gained 0.815, or 8.15 euros per 1,000-euro ($1,318) face amount, to 100.665.
Greek lawmakers will begin voting on austerity measures this weekend after European finance ministers demanded further commitments to austerity from Athens to win the 130 billion-euro bailout. The country is facing a 14.5 billion-euro bond payment on March 20.
Greece “must get this deal agreed really within the next few days to enable them sufficient time and have the new bailout money disbursed before that bond is due,” Tony Stringer, Fitch Ratings’s managing director of global sovereigns, said in an interview in Singapore. “If they don’t manage to achieve that, then it could be in the realm of a disorderly default.”
Schaeuble, briefing lawmakers on estimates assessing Greek progress, said Greece’s pledges would leave the nation’s debt as high as 136 percent of gross domestic product by 2020, according to two people who took part in the meeting. The target for Greece’s debt cuts and bond writedown was to reduce debt to 120 percent of GDP by then.
Bunds dropped yesterday as the European Central Bank kept its refinancing rate unchanged at 1 percent and the central bank’s president, Mario Draghi, said there were “signs of stabilization,” damping demand for safer assets.
Germany’s bonds have returned 11 percent in the past year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Italian securities gained 2.4 percent, and Greek debt slid 63 percent.
Spain’s 10-year note yield rose 14 basis points to 5.31 percent, leaving it up 32 basis points this week. The Italian 10-year yield was 13 basis points higher at 5.61 percent.
The extra yield investors demand to hold Spanish 10-year bonds instead of similar-maturity bunds widened 22 basis points today to 3.38 percentage points. Italian 10-year bonds yielded 3.69 percentage points more than similar maturity bunds, from 3.47 percentage points yesterday.
London-based Barclays said in a statement today that it increased its holdings of Italian bonds by 57 percent to 3.5 billion pounds last year while reducing its ownership of Spanish government debt. ING Group NV, the biggest Dutch financial- services company, said yesterday it cut government bond holdings in the quarter that ended in December, “largely due to a reduction in Italian and Spanish exposures.”
Demand for Spanish and Italian bonds was bolstered after the ECB said on Dec. 8 it would offer unlimited three-year loans to the region’s financial institutions in a long-term refinancing operation, or LTRO, to stimulate lending. Spain’s two-year yields have dropped 2 percentage points since then amid speculation banks are buying the securities to use as collateral with the ECB.
“We’re in a holding pattern waiting for announcement on the Greek side” said Guy Mandy, a fixed-income strategist at Nomura International Plc in London. “The more cautious investors are sticking with core markets, and others that see the LTRO as quite bullish are still looking at peripherals.”
Volatility on Portuguese debt was the highest in euro-area markets today, followed by Greece, according to measures of 10- year bonds, two- and 10-year spreads and credit-default swaps. The yield on the Portuguese security due April 2021 slipped 93 basis points to 12.43 percent, while the Greek 10-year yield increased 29 basis points to 32.91 percent.
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