EURO GOVT-Bunds fall on debt sales, Greece under pressure
Thu May 19, 2011 5:57am EDT
* Spain sells long-dated bonds at bottom of target range
* Investors mop up French index-linked, conventional bonds
* Greek CDS rises as ECB reiterates restructuring stance
By Ana Nicolaci da Costa
LONDON, May 19 (Reuters) - German government bonds fell on Thursday as investors absorbed supply from Spain and
France,
while Greek bonds were under some pressure on uncertainties over a possible solution for Greece's debt crisis.
Spain sold long-dated bonds at the bottom of the Treasury's target range, showing sentiment towards its debt remained tepid as talk of Greek restructuring made investors anxious about taking on lower-rated debt for a long period.
That same backdrop, however, should limit the downside for Bunds as questions remained over when and how
Greece may restructure and whether this would be enough to lift the country out of the doldrums.
"
Spain may be decoupled (from Greece) but the contagion effects are clearly still there and in the long run one has to say these aren't fantastic levels for Spain to be financing itself given the sheer volume of debt it has got to sell this year," said Marc Ostwald, strategist at Monument Securities in London.
Yields on 10-year Spanish bonds ES10YT=TWEB stood 6.5 basis points higher at 5.43 percent while yields on short-dated Greek and Spanish debt also rose.
The German Bund future FGBLM1 was 25 ticks lower on the day at 124.06, also helped by gains in European shares, led by commodity-linked stocks. [.
France also sold inflation-linked and conventional paper in auctions that met with solid demand. .
GREEK SAGA
The Greek saga came to the fore again this week when euro zone policymakers acknowledged for the first time that some form of restructuring might be required to ease Greece's debt burden. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on euro zone debt struggle
r.reuters.com/hyb65p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
But European Central Bank Executive Board member Juergen Stark said on Wednesday a debt restructuring of any kind would spell disaster for Greek banks.
He also said restructuring of sovereign debt in Greece would make it impossible for the ECB to continue to accept its bonds as collateral in liquidity operations, according to an ECB spokesman.
The cost of insuring Greek debt against default was up 28 basis points on the day at 1,330 bps on the strengthening ECB opposition to restructuring but the 10-year Greek/German spread only widened slightly on the day.
"He (Stark) is just following in line with the standard (position) that they are against restructuring," Fred Goodwin, interest rate strategist at Nomura, said.
"The big thing going forward (is) ... there is going to be more aid for Greece but what is the conditionality for that aid?"
Kornelius Purps, fixed-income strategist at UniCredit MIB, said there was some safe-haven premium in German Bund prices and that economic fundamentals did not justify 10-year yields DE10YT=TWEB at their current levels.
Ten-year German bond yields DE10YT=TWEB traded 1.1 basis points higher at 3.12 percent and 2-year German bonds DE2YT=TWEB gained 1.4 bps to 1.83 percent.
"It is very tricky that in this sensitive issue Europe is speaking with about 20 voices," Purps said. "This is clearly a negative and leaves investors guessing what might happen."
He said since some form of debt restructuring or reprofiling had already been priced in the market and the price impact of such talk would be limited until new details were unveiled.
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