Greece?s 10-year yields rose to a record on speculation the nation?s deepening recession may make a second international bailout agreement inadequate even before it is implemented.
Italian two-year notes fell amid concern that European Central Bank buying won?t be enough to support the market. The yield difference, or spread, between Greek 10-year bonds and similar-maturity German bunds widened to the most since at least 1998. German 10-year bund yields rose after falling to a record low. Greece plans to auction 1 billion euros ($1.4 billion) of six-month bills today and Austria will sell bonds.
?The consensus seems to be that the second bailout package for Greece might be obsolete before it has been put into law, which is obviously detrimental for sentiment,? said Michael Leister, a fixed-income strategist at WestLB AG in London. ?The ECB is having a hard time stabilizing these markets. The pressure is rising.?
Greece?s 10-year yield climbed 10 basis points to 19.41 percent as of 9:26 a.m. in London. The 6.25 percent security maturing in June 2020, fell 0.22, or 2.2 euros per 1,000-euro face amount, to 46.405. Two-year note yields were little changed at 50.36 percent.
The yield spread between Greek 10-year securities and similar-maturity German bunds widened to a euro-era record 1,753 basis points, or 17.53 percentage points.
German Chancellor Angela Merkel told members of her Christian Democrats party that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said.
Greece?s economic predicament, a wavering commitment to budget cuts in Italy and mounting borrowing costs for European banks underscore investor concerns that efforts by euro-area officials to contain the debt crisis are unraveling.
Commerzbank AG Chief Executive Officer Martin Blessing said it remains ?unclear? whether Greece will manage to bring its debt down to a sustainable level ?in our lifetime.?
Blessing cited a model estimating the potential for European countries to reduce their debt to below 60 percent of gross domestic product by 2030. It is possible for countries to consolidate their debt over time, he said at a conference in Frankfurt today.
Italian two-year note yields rose six basis points to 4.15 percent. Ten-year yields fell three basis points to 5.53 percent after climbing as much as nine basis points to 5.65 percent, the most since Aug. 8 when the European Central Bank began buying the bonds.
The ECB began buying Spanish and Italian government debt last month to curtail a surge in bond yields as contagion from the debt crisis that engulfed Greece, Ireland and Portugal infected the euro-region?s third- and fourth-largest economies.
Italian bonds slid yesterday amid concern Prime Minister Silvio Berlusconi?s government will backslide on its 45.5 billion-euro austerity package, which convinced the ECB to buy Italian bonds. Workers will protest against the plan today in a strike organized by Italy?s biggest union, CGIL.
Ten-year German bund yields were three basis points higher at 1.87 percent, after dropping to a record 1.838 percent. Two- year notes yields were little changed at 0.44 percent. They declined to 0.42 percent yesterday, the lowest ever.
German 10-year yields have dropped about 50 basis points in the past month as a rout in shares around the world increased demand for the nation?s debt.
Economists say a report today will affirm growth in the 17- nation euro area slowed last quarter. Euro-region gross domestic product expanded 0.2 percent in the second quarter, are expanding 0.8 percent in the previous three months, according to the median of 34 estimates in a Bloomberg News survey.
German government bonds have returned 7.4 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries gained 8.3 percent. [Bloomberg]