Greek Bonds Lead Euro-Area Periphery Rally on Recovery Optimism

By Neal Armstrong and Lukanyo Mnyanda  Mar 18, 2014 6:24 PM GMT+0200

Bloomberg

Greece’s government bonds led gains among Europe’s higher-yielding sovereign securities as optimism that the country is set to sell coupon-bearing debt for the first time in four years boosted demand for its assets.

Ten-year bonds rose for a second day after Infrastructure Minister Michalis Chrisochoides said Greece will probably sell securities before May. Greece reached an agreement with its creditors after a review of its adjustment program, a European Union spokesman said. Athens-based Piraeus Bank SA (TPEIR) sold non-investment grade debt. German bunds erased a gain as President Vladimir Putin said Russia won’t further split up Ukraine, damping demand for the euro area’s safest assets.

“It’s another illustration of the market sentiment if even Greece can think of being able to come to the market,” said Jan von Gerich, a fixed-income strategist at Nordea Bank AB in Helsinki. “Sentiment toward the periphery has been quite resilient in general lately, that whatever short bouts of risk aversion we’ve seen have had only a limited effect.”

Greek 10-year yields fell 22 basis points, or 0.22 percentage point, to 6.82 percent at 4:21 p.m. London time after declining 18 basis points yesterday. The 2 percent bond due in February 2024 rose 1.335, or 13.35 euros per 1,000-euro ($1,391) face amount, to 74.775.

Greece’s bonds have earned 18 percent this year through yesterday, the best performers among 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Portugal’s debt securities returned 10 percent, and Spain’s gained 5.3 percent.

‘Doubters Wrong’

Talks between Greece, whose admission in 2009 that it had a bigger budget deficit than previously reported started the euro region’s sovereign debt crisis, and the EU, International Monetary Fund and European Central Bank ended successfully, Prime Minister Antonis Samaras said today. The review “proves doubters wrong,” he said.

Investors are returning to the markets they shunned during the debt crisis, helping push the average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain to euro-era lows last week, according to Bank of America Merrill Lynch indexes. Portugal is due to end its 78 billion-euro rescue program in May, while Ireland, which exited its bailout program in December, raised 1 billion euros last week in its first bond auction since September 2010.

Piraeus Bank sold 500 million euros of three-year notes through its Piraeus Group Finance Plc unit, according to a person familiar with the matter. The debt, which may be rated CCC or eight steps below investment grade by Standard & Poor’s, was priced to yield 5.125 percent.

Portugal Buyback

Portugal’s bonds rose as the nation bought back 50 million euros of government debt due in October 2015 today. Portuguese 10-year yields fell nine basis points to 4.43 percent.

Volatility on Portuguese bonds was the highest in euro-area markets today, followed by those of Greece and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Benchmark German bonds rose earlier as Putin said he supported Crimea’s request to join Russia after the region voted for secession and an industry report showed investor confidence in Europe’s biggest economy fell this month to the lowest level since August.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to 46.6 from 55.7 in February. Economists forecast a decline to 52, according to the median estimate in a Bloomberg News survey.

‘Risky Endeavor’

Ten-year bund yields were little changed at 1.57 percent after dropping to as low as 1.55 percent. The rate slipped to 1.50 percent on March 14, the least since July.

“Shorting bunds looks still like a risky endeavor,” Commerzbank AG strategists, including Michael Leister in London, wrote in an e-mailed note, referring to bets an asset will decline. “In light of the uncertainty surrounding political sanctions against Russia, we opt for tactical longs in the bund-future.”

A long position is a bet an asset will rise in value. Commerzbank is Germany’s second-largest bank. Bund futures contracts expiring in June were little changed at 143.27.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Nicholas Reynolds