German 30-Year Bonds Rise on IMF Vigilance Call; EFSF Sells Debt
German 30-year bonds rose, with yields falling from near a four-month high, as International Monetary Fund Managing Director Christine Lagarde urged policy makers to be vigilant of threats to global economic stability.
Ten-year bunds were little changed as credit-default swaps dealers held an auction to settle Greek bond insurance claims. Portuguese bonds advanced even after Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., said the nation is likely to become a second Greece. The European Financial Stability Facility sold 1.5 billion euros ($1.99 billion) of 20-year securities.
“Bunds are higher after the IMF comments,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “It reminds investors that there are still a lot of worries, most of all regarding Greece. The bailout we just had most likely isn’t the last one.”
The German 30-year yield fell three basis points, or 0.03 percentage point, to 2.68 percent at 4:34 p.m. London time. The 3.25 percent bond due July 2042 rose 0.630, or 6.30 euros per 1,000-euro face amount, to 111.705. The yield climbed to 2.73 percent on March 16, the highest level since Dec. 8.
The 10-year yield was little changed at 2.05 percent, after dropping to as low as 2 percent.
The German 10-year yield fell one basis point to 2.04 percent at 4:12 p.m. London time, after dropping as much as five basis points to 2 percent. The 2 percent bond due January 2022 rose 0.08, or 80 euro cents per 1,000-euro face amount, to 99.630. The yield climbed to 2.07 percent on March 16, the highest level since Dec. 12.
Greece remains “accident prone” and may require further debt restructuring or additional financing from euro countries if it struggles to implement measures attached to a new 130 billion-euro bailout, the IMF said in a report.
“Optimism should not give us a sense of comfort or lull us into a false sense of security,” Lagarde said yesterday at a speech at the China Development Forum in Beijing. “We cannot go back to business as usual.”
German 10-year yields may drop toward 1.9 percent after failing to sustain a break above 2.05 percent, Leister said, citing trading patterns.
“The 2 percent to 2.10 percent area for 10-year bund yields is key,” he said. “It seems that the range is going to hold for now. There’s scope in the short-term for a move towards 1.9 percent.”
Stocks are poised to outperform bonds, according to UBS.
“The secular bear market in bonds has begun,” UBS said in a report dated March 16. “The source of the sell-off is clear - - an improved and more durable global economic recovery, particularly in the U.S.,” UBS analysts including chief economist Larry Hatheway in London wrote in a note to clients.
Portuguese bonds rallied even after Pimco’s El-Erian said the nation is likely to require another bailout.
“Unhappily, this will be the case,” El-Erian said in an interview with Germany’s Der Spiegel. The first rescue package for Portugal will prove insufficient and the country will ask the euro region for more money, he was cited by the magazine as saying. “Then the financial markets will get nervous.”
Pimco, which manages the world’s biggest bond fund, is avoiding the debt of Greece, Ireland and Portugal and is also “cautious” on the bonds of Spain, Italy, France, Andrew Balls, London-based head of European portfolio management, said in an interview published on the Pimco’s website.
The company also sees a “significant risk” Greece will leave the 17-nation euro-region, Balls said in the interview.
“Greece’s exit from the Eurozone remains a significant risk and one that could lead to contagion,” he said.
Sellers of credit-default swaps on Greece will have to pay as much as $2.5 billion to settle contracts triggered by the nation’s debt restructuring.
The settlement was determined after dealers agreed a final value for Greek bonds of 21.5 percent of face value at an auction, according to administrators Markit Group Ltd. and Creditex Group Inc.
The yield on Greece’s 2 percent bond maturing in February 2042 rose nine basis points to 15.09 percent.
Italian bonds rose even as a report showed industrial orders fell in January for the first time since October. Orders dropped 7.4 percent after rising a revised 5.2 percent the previous month, the government said.
Italy’s 10-year bond yield declined three basis points to 4.83 percent.
The EFSF sold bonds due in March 2032 priced to yield 115 basis points over swaps, giving an implied yield of 3.956 percent, according to a press release.
France sold 4.007 billion euros of 91-day bills at an average yield of 0.047 percent. Investors bid for 2.92 times the amount of debt allotted. That compares with a so-called bid-to- cover ratio of 2.47 at the previous auction of similar-maturity securities on March 12, which were sold at a yield of 0.067 percent.
France also sold securities due in 168- and 350 days. Greece and Spain will sell bills tomorrow.
German bunds handed investors a loss of 1.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds rose 13 percent, the data show.
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