German debt headed for a weekly advance as the split pushed investors to seek safer assets. Greek Prime Minister is racing to secure an explicit pledge of European aid and cut his country’s borrowing costs as 20 billion euros ($27 billion) of debt comes due in the next two months.
“There’s a lot of uncertainty out there and that doesn’t support Greek bonds at the moment,” said , a fixed- income strategist at ING Groep NV in Amsterdam. “There’s some flight to quality, and Germany is performing better than other countries.”
The yield on the 10-year Greek bond rose 4 basis points to 6.38 percent as of 11:27 a.m. in London, and earlier reached the highest since Feb. 26, according to generic data compiled by Bloomberg. It’s headed for a 14-basis-point advance for the week. The 6.25 percent security due in June 2020 fell 0.27, or 2.70 euros per 1,000 euro face amount, to 98.960.
The yield premium investors demand to hold Greek securities instead of German bunds widened to , according to the generic data, the most since Feb. 26.
Widening Spread
That spread widened to as much as 396 basis points on Jan. 28, prompting assurances of a safety net from the euro zone’s 16 nation members and extra austerity measures from Greece. Papandreou says Greece deserves better treatment from markets after presenting the program of spending cuts and tax increases on March 3, which sparked the second national strike in less than two months.
While European finance ministers this week adopted a bailout framework for debt-stricken Greece, German Chancellor government has also signaled it may force Papandreou to seek International Monetary Fund assistance. European Commission President said today he didn’t exclude turning to the IMF for a Greek rescue. Bundesbank board member said Europe should let Greece go bankrupt if it can’t refinance its debts, rather than provide financial aid, Salzburger Nachrichten reported.
“The problem for Greece is that they have been relying on the pledge of guarantees to see the yield spread come down so that they can refinance at a lower rate,” , global head of fixed-income research at HSBC Holdings Plc in London, said in a Bloomberg Television interview. “The markets aren’t silly. They need to see the color of the money. I think that the possibility of more IMF involvement is quite serious.” He called longer-dated Greek bonds “still very good value.”
Bunds Slip
The German bund yield fell 1 basis points to 3.12 percent, headed for a weekly decline of 3 basis points, the first drop since Feb. 26.
“The ten-year bund yield could and should be pushed below 3 percent by all this uncertainty,” , chief economist at High Frequency Economics in Valhalla, New York, wrote in a report today. “Spreads between bunds and riskier euro-denominated sovereign debt should continue to widen.”
Portugal’s 10-year bond yield rose 3 basis points today, widening the yield premium over Germany to 120 basis points. Irish 10-year yields gained 4 basis points, increasing the spread with Germany to 143 basis points.
