Spanish, Italian Bonds Slide on Greek Crisis Contagion
German 10-year bond yields were four basis points from a record low as investors sought safety amid speculation Greece is moving closer to an exit from the euro.
The extra yield, or spread, investors demand to hold Spanish 10-year bonds instead of benchmark German debt widened to a euro-era record of more than 5 percentage points after Prime Minister Mariano Rajoy said Spain faces being shut out of financial markets. Germany attracted bids equivalent to 1.5 times the amount on offer at today’s auction even with a record low yield. French 10-year bonds erased declines after the nation sold bills. Irish two-year notes slumped for a ninth day.
“The flight-to-quality sentiment is supporting bunds,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “The current yield level is no hurdle for bunds as capital preservation is the name of the game.”
German 10-year yields were little changed at 1.47 percent at 11:53 a.m. London time, near the 1.434 percent level reached on May 14, which was the least on record. The 1.75 percent security due July 2022 traded at 102.61 percent of face value.
The yield may drop to less than 1.4 percent today, Commerzbank’s Schnautz said. Median predictions in Bloomberg surveys of economists are for the yield to end 2012 at 2.25 percent and rise to 2.35 percent in March.
German debt has returned 2.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds lost 3.8 percent, the data show. French bonds made 2.8 percent.
The Spanish 10-year yield premium over bunds climbed as much as 19 basis points to 507 basis points. The Italian-German spread jumped as much as 17 basis points to 457 basis points, the most since Jan. 19.
Greece is headed for new elections after the inconclusive May 6 vote pushed Syriza, which opposes the nation’s international bailout, into second place and reignited concern that the country will renege on pledges to cut spending as required by its two aid packages worth 240 billion euros ($305 billion).
Greece’s 2 percent security maturing in February 2023 declined for a 12th day, pushing the yield up by 98 basis points to 30.38 percent. That left the price at 13.54 percent of face value. The yield exceeded 30 percent for the first time since the nation’s debt restructuring in March. Irish two-year yields jumped 55 basis points to 6.84 percent.
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