Greek Bonds Rise for Fourth Day as Nation Presents Budget Cuts
March 03, 2010, 12:14 PM ESTBy Anna Rascouet
March 3 (Bloomberg) -- Greek 10-year bonds rose for a fourth day, reducing the debt’s yield premium over German securities, as the government announced as much as 4.8 billion euros ($6.5 billion) in extra deficit cuts.
The yield on the security fell to its lowest in more than two weeks as the austerity measures stoked speculation the European Union will step in to help Greece tackle its deficit, the region’s largest. Steps unveiled today include a 2- percentage-point increase to the value-added tax, a freeze in pensions and a 30 percent cut in civil servants’ bonus salary, according to Prime Minister George Papandreou.
“It keeps Greece in line with what the EU expected of them, and meets that conditionality in the Union’s support,” said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London. “It’s a relief that they are pushing on with this plan, so markets aren’t in meltdown.”
The yield on the 10-year Greek bond fell 18 basis points to 5.99 percent as of 3:36 p.m. in London. The two-year note yield, which dropped as much as 69 basis points two days ago, traded 24 basis points lower at 5.35 percent.
Yields on 10-year Greek bonds fell to within 285 basis points of similar maturity German government bonds, down 19 basis points from yesterday.
“These measures increase the probability of debt stabilization provided that they, and the previously announced policy measures, are fully implemented,” Sarah Carlson, a senior vice-president at Moody’s Investors Service, said in a statement from the credit-rating company. Moody’s, which said it may cut Greece’s credit rating last week, said today’s plan was consistent with the current A2 rating.
Yield Spread
While the so-called spread dipped below 300 basis points yesterday for the first time since Feb. 12, and is down from the peak of 396 basis points reached on Jan. 28, it remains above the average of 58 basis points for the past decade after months of investor concern over Greece’s finances.
The cost of insuring against a Greek default fell 8 basis points to 313, the lowest since Jan. 18.
Greek bonds extended their longest run of gains in three weeks. Papandreou is preparing to meet Germany’s Angela Merkel on March 5 and French President Nicolas Sarkozy on March 7 to discuss Greece’s fiscal woes.
Schroders Plc, which oversees about $210 billion of assets, said today’s cuts don’t address all of its concerns about Greece.
‘Very Defensive’
“We’re very defensive, and we don’t have any involvement in Greek bonds,” Jamie Stuttard, who manages about $25 billion as head of European fixed income at the London-based company, said in an interview. “The measures today were steps in the right direction, but at the end of the day, given the very large annual deficit and the large debt to gross domestic product, Greece’s problems are very large indeed.”
Standard & Poor’s has become less pessimistic than financial markets on Greece’s ability to tackle its fiscal issues, Global Head of Sovereign Ratings David Beers said today at a conference in Singapore. S&P had prompted investors to sell Greek debt last week by saying it may cut the nation’s credit rating, as did Moody’s Investors Service.
The European Central Bank will probably leave its benchmark interest rate unchanged at its monthly meeting tomorrow, when it has said it would decide on ways to unwind emergency lending programs. It may discuss tightening the terms of the six-month, three-month and one-month loans.
During the last ECB meeting in February, bunds rose, pushing the 10-year yield down 6 basis points to 3.36 percent, when ECB President Jean-Claude Trichet said that “the recovery process is likely to be uneven.” Since then, the German 10-year bund climbed, pushing the yield down 22 basis points. The two- year note dropped 51 basis points.
‘Scope for Correction’
The two-year German government bond yield, which reached a record low last week, and the 10-year bund yield, which reached its lowest since October on Feb. 26, may reverse recent gains as investors bet an aid plan for Greece will soon be announced and the European Central Bank will announce liquidity-withdrawal measures, according to Nomura International Plc.
“With a financing plan for Greece drawing closer and the ECB meeting approaching, we see increasing scope for a near-term correction,” strategists Charles Diebel, Sean Maloney and Guy Mandy in London wrote in an research note today.
German Bonds Fall
German government bonds fell after the nation auctioned five-year debt. The yield on the 10-year bund gained 2 basis points to 3.14 percent. The 3.25 security due January 2020 fell 0.16, or 1.60 euros per 1,000-euro ($1,361) face amount, to 100.94. The yield on the two-year note rose 3 basis point to 0.98 percent.
Germany sold 4 billion euros of 2.5 percent notes due in February 2015, receiving more bids than at the two previous auctions of the security. The Bundesbank retained 19.7 percent of the amount on offer, more than the 19.6 percent it kept at the February sale and the 17.5 percent at the January sale. The securities were priced to yield 2.13 percent on average.
Greek bonds have lost 1.89 percent so far this year, according Bloomberg/EFFAS indexes. That compares with a 2.36 percent gain for German bonds, the indexes show.
European Commissioner for Financial Services Michel Barnier summoned banks and regulators across Europe to discuss regulation for the market of sovereign credit-default swaps, the European Commission said today. Lawmakers are facing growing calls to regulate the products in the wake of the Greek debt crisis. Barnier said yesterday that the EU would probe sovereign CDS trading.
--With assistance from Abigail Moses, Anchalee Worrachate and Lucy Meakin in London, and Christos Ziotis and Natalie Weeks in Athens. Editors: Keith Campbell, David Clarke.
To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles in London at dtilles@bloomberg.net
