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German Bonds Fall as EU Ministers Grant Easier Terms for Greece

Nov. 27 (Bloomberg) -- German bonds declined, with 10-year yields rising the most in a week, after European finance ministers meeting in Brussels eased the terms on emergency aid for Greece, damping demand for the region’s safest assets.

Ten-year bund yields climbed to a three-week high after the ministers cleared Greece to receive a 34.4 billion-euro ($44.6 billion) loan installment in December and engineered a bond buyback. Greek securities advanced. Spain’s two-year notes rose for a sixth day after the nation sold 4.09 billion euros of bills and the deal for Greece buoyed sentiment toward borrowers in Europe’s peripheral countries.

“With Greece, there has been severe tightening of spreads,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “If you look at the equity markets, the mood is quite positive with regard to the latest outcome” while the Spanish debt sale was “quite supportive,” he said.

German 10-year yields rose three basis points, or 0.03 percentage point, to 1.44 percent at 12:57 p.m. London time, after reaching 1.47 percent, the highest since Nov. 2. The 1.5 percent bond maturing in September 2022 dropped 0.25, or 2.50 euros per 1,000-euro face amount, to 100.53.

Euro-area finance ministers agreed to lower the rates on bailout loans for Greece, suspended the nation’s interest payments for a decade and gave it more time to repay. The Stoxx Europe 600 Index of shares gained 0.4 percent.

‘Peripherals Stabilize’

“The fate of Greece is no longer a day-in, day-out worry,” Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris, wrote in an e-mailed note. “That ought to prove a big relief in time, and help other peripherals stabilize.”

European finance ministers said in a statement that “any tender or exchange prices” as part of a buyback of Greek securities “are expected to be no higher than those at the close” on Nov. 23.

The price of Greece’s 2 percent bonds due in February 2023 climbed to 34.75 percent of face value, from 34.36 percent on Nov. 23. The yield dropped 18 basis points today to 16.32 percent. Thirty-year bonds advanced to 26.19 percent of face value from 25.40 percent at the end of last week. The rate fell 34 basis points today to 13.30 percent.

‘Sustainable Path’

“All initiatives decided upon today will bring Greece’s public debt clearly back on a sustainable path,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing the meeting.

Spain sold three-month bills at an average yield of 1.254 percent, compared with 1.415 percent on Oct. 23, and six-month securities at 1.669 percent, from 2.023 percent last month.

The yield on Spain’s two-year note dropped seven basis points to 2.94 percent, after falling to 2.93 percent, the lowest since Oct. 23. The 10-year rate slid six basis points to 5.56 percent.

Italy allotted 3.5 billion euros of zero-coupon notes due in 2014 at an average yield of 1.923 percent, down from 2.397 percent at a previous sale on Oct. 26. That’s the lowest rate since an auction of similar securities in October 2010. Italy also sold inflation-linked bonds due in 2019 and 2026.

The nation’s two-year note yield dropped two basis points to 1.97 percent.

France’s bonds were little changed as a report showed a gauge of consumer confidence was unchanged in November, halting a four-month decline. French household sentiment held at 84 this month, the national statistics office Insee said in Paris. Analysts had expected a drop to 83, according to the median estimate of 16 economists in a Bloomberg survey.

Bond Yields

The yield on France’s 10-year bonds was at 2.14 percent, while those on top-rated Finnish securities with a similar maturity were at 1.68 percent, after rising as much as five basis points to 1.72 percent. Dutch 10-year yields were little changed at 1.67 percent.

“We do see further normalization at the moment, and core yields are going to grind higher,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “On the data front, it’s still a mixed picture.”

Volatility on Portuguese bonds was the highest in euro- region markets, followed by those of Germany, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.

The Netherlands sold 2.4 billion euros of 2015 notes at a record-low average-auction yield of 0.129 percent.

German bonds returned 3.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt also gained 3.6 percent and Italian securities earned 19 percent.

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