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Greek yields fall below 7 percent as crisis source regains confidence

By Lukanyo Mnyanda and Anchalee Worrachate

Greek 10-year yields fell below 7 percent for the first time since the nation’s initial financial bailout in 2010, as signs Europe is putting the debt crisis behind it boosted demand for the region’s assets.

Four years after threatening to splinter Europe’s monetary union, Greece’s surging bonds are a symbol of the region’s recovery that’s giving investors the confidence to search for higher returns than those offered on benchmark German debt. The drop in yields marks a turnaround for a country that was rescued by its neighbors as borrowing costs surged after it admitted having a bigger budget deficit than previously predicted. The euro climbed to the highest level this year versus the dollar.

“When investors look at the euro zone, they are no longer worried,” said Elwin De Groot, a markets economist at Rabobank in Utrecht, the Netherlands. Higher yields “can be found in the periphery more so than in the core countries” such as Germany, he said.

Greek 10-year bond yields fell 14 basis points, or 0.14 percentage point, to 6.88 percent at 11:22 a.m. London time, after declining to 6.76 percent, the least since May 2010. The yield has dropped 74 basis points this week. The 2 percent bond due in February 2024 rose 0.845, or 8.45 euros per 1,000-euro ($1,379) face amount, to 74.30.

The rate climbed to a record 44.2 percent in March 2012.

Greek bonds advanced even as a meeting with the country’s creditors this week ended without an agreement on how much extra capital the nation’s lenders need.

Irish Yields

Irish 10-year yields were about eight basis points from a record low and similar-maturity Portuguese bonds extended a weekly gain. Both Ireland and Portugal were recipients of international aid during Europe’s financial turmoil.

The rate on Ireland’s 10-year bonds was little changed at to 3.10 percent today, down nine basis points this week. The rate fell to 3.02 percent on Sept. 22, 2005, the least since the euro’s 1999 debut.

Portugal’s 10-year bond yield was at 4.82 percent, down 11 basis points since Feb. 21. The rate dropped to 4.78 percent yesterday, the least since June 2010.

Europe’s sovereign debt crisis broke out in 2009 after Greece’s newly elected socialist government said its budget deficit was twice as big as the previous administration had disclosed. The selloff in euro peripheral bonds accelerated, pushing up borrowing costs and threatening to break the monetary union.

Crisis Fading

Greek assets are now winning investors back as fixed- income, currency and derivatives markets show the crisis that gripped the euro area from 2009 is fading. With European Central Bank President Mario Draghi sticking by his pledge to backstop the region, investors are returning to Greek bonds, even after the nation’s financial trauma caused private bondholders to write off more than 100 billion euros in 2012.

The country has received two international bailouts, and its ratio of debt to gross domestic product will be about 177 percent this year, according to European Commission forecasts. It swapped existing securities for new bonds maturing between 2023 and 2042 as part of the world’s biggest sovereign-debt restructuring in 2012.

The euro climbed as much as 0.8 percent $1.3813, the highest level since Dec. 31.

Greek bonds have earned 17 percent this year, the best performer among 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Those of Portugal and Ireland returned 8.6 percent and 3.5 percent, while Germany’s gained 2.6 percent.

[Bloomberg]

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