Bunds Advance as Greek, Portuguese Bonds Decline on Debt Crisis
Posted by adminJune 11 (Bloomberg) — German government bonds rose for a third week as policy makers clashed over a solution to the euro- region’s funding crisis and traders pared bets on when the European Central Bank will increase borrowing costs.
Greek, Portuguese and Irish bonds slumped as German Finance Minister Wolfgang Schaeuble stepped up his calls for bondholders to assume a “fair” share of further Greek aid, pitting him against the ECB, which rejects any direct participation in a second bailout. The ECB said on June 9 that inflation is unlikely to rise above 2.3 percent in 2012, trimming a previous forecast for 2.4 percent and prompting investors to cut bets on the pace of rate increases.
“By both the fundamentals and the debt crisis, bunds are really well supported,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf, Germany. “We had a more benign view on 2012 inflation and you have a stand-off between the ECB and Schaeuble over what the role of private investors in any sort of Greek restructuring will be. Those two things, taken together, have caused bunds to rise.”
The two-year German note yield fell 15 basis points to 1.54 percent as of 4:33 p.m. in London, the least since March 17. Ten-year yields fell 10 basis points to 2.96 percent.
ECB President Jean-Claude Trichet signaled on June 9 that the bank intends to lift its benchmark rate in July after keeping it at 1.25 percent this month. The central bank’s policy makers are concerned about oil-driven inflation feeding into wage demands. Higher borrowing costs may exacerbate the sovereign-debt crisis that’s pushing Greece toward a default and leading to contagion of other high debt and deficit nations, including Ireland and Portugal.
Interest-Rate Bets
Euribor futures rose, pushing the implied yield on the contract expiring in March 2012 down 12 basis points to 1.90 percent, indicating fewer bets on higher ECB interest rates.
Portugal’s 10-year bond yields climbed 65 basis points to a euro-era record of 10.45 percent, the biggest weekly gain since the five days ending April 1. Greece’s 10-year yields climbed 78 basis points to 16.72 percent, while Ireland’s increased 44 basis points to 11.25 percent.
The cost of insuring against default on government debt sold by Greece, Portugal and Ireland rose to records, according to traders of credit-default swaps.
The yield difference, or spread, between 10-year German bunds and Portuguese securities of a similar maturity widened 70 basis points to 745 basis points, the most since at least 1997 when Bloomberg began collecting the data.
Slowing Inflation
Bunds may rise next week should data confirm inflation in the 17-nation euro region slowed in May. Consumer-price inflation decelerated to 2.7 percent from 2.8 percent in April, according to the median estimate of 30 economists in a Bloomberg survey before the June 16 report. April’s reading was the fastest since October 2008.
German government bonds have returned zero this year, while U.S. Treasuries have returned 3.1 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds handed investors a loss of 14 percent in the same period, while Irish bonds have lost 8.3 percent and Portugal’s declined 15.5 percent, the indexes show.
–Editors: Matthew Brown, Mark McCord
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