Greek bonds advance as German lawmakers approve fund expansion

Greek government bonds led gains by securities of Europe?s most indebted countries as German lawmakers backed an expansion of the euro-are rescue fund.

Greek securities rose for a third day and Irish and Belgian debt advanced as Germany?s lower house of parliament passed the measure granting the fund powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. German 10-year bonds gained, snapping losses that pushed the yield above 2 percent Wednesday, after a report showed European confidence in the economic outlook fell more than forecast.

?Investors are now looking at putting risk on rather than taking it off,? said Steven Major, global head of fixed-income research at HSBC Holdings Plc, speaking in an interview on Bloomberg Television?s ?The Pulse? with Francine Lacqua. ?People are looking at the short end once again.?

Greece?s two-year yield fell 152 basis points to 68.25 percent at 11:56 a.m. in London, down from a euro-era record 84.52 percent on Sept. 14. The 4 percent note due August 2013 gained 0.725, or 5.25 euros per 1,000-euro ($1,366) face amount, to 41.210. Ten-year rates slid 28 basis points to 22.76 percent.

Irish two-year yields declined 18 basis points to 7.40 percent, and Belgium?s two-year rates fell for a seventh day, dropping five basis points to 1.91 percent.

Lawmakers in the Bundestag voted 523 in favor of the legislation, while 85 voted against and three abstained. It is now set to be debated and set to a non-binding vote in the upper house Friday. Merkel, head of Europe?s largest economy and the biggest country contributor to bailouts for Greece, Ireland and Portugal, spent weeks convincing dissenters in her coalition to back the July 21 accord by euro-area leaders to expand the fund.

German 10-year bonds snapped a four-day loss after the European Commission said its index of executive and consumer sentiment in the region slid to 95 from a revised 98.4 in August. That?s the lowest since December 2009.

The 10-year yield fell four basis points to 1.97 percent, after rising Wednesday to 2.02 percent.

?There?s still a lot of uncertainty in the market, especially on the political side,? said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group AG in Zurich. The decline in bond yields Thursday was ?also a bit of a countermove? after the 10-year yield rose to above 2 percent, he said.

German bonds rallied this month as reports signaled the region?s economy is slipping back into a recession. Bonds have gained 1.6 percent in September, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. The securities declined 1.2 percent in the past week on optimism Europe will boost mechanisms to deal with the crisis, the indexes showed.

Global investors anticipate Europe?s debt crisis leading to an economic slump and social unrest in the next year with 72 percent predicting a country abandoning the euro within five years, according to a Bloomberg survey. About three-quarters of those questioned said the euro-area economy will fall into recession in the next 12 months, according to the quarterly Global Poll.

Italian bonds were little changed after the country sold 7.9 billion euros of securities.

The Treasury auctioned 3.14 billion euros of notes due in 2014 to yield 4.68 percent, compared with 3.8 percent at the previous sale on Aug. 30. Demand was 1.36 times the amount sold, compared with 1.32 times in August. It also auctioned securities due in 2015, 2021 and 2022.

The country?s borrowing costs surged to euro-era records last month as Greece?s slide toward default fueled concern Italy would become the next victim of the region?s sovereign crisis. The auction comes after the nation sold 750 million euros of inflation-linked bonds Thursday.

The 10-year bond yielded 5.64 percent, while the two-year rate was at 4.36 percent.

Sweden?s 10-year yield declined seven basis points to 1.86 percent as the debt office said it would be able to sustain a larger-than-needed bond market to keep up liquidity for the nation?s debt as its borrowing levels shrink.

The office was responding to a government commission from April 2010 on how to deal with declining levels of debt as Sweden posts surpluses and sells off state assets. The largest Nordic economy?s debt has fallen to about 35 percent of gross domestic product from more than 70 percent in the 1990s.

Volatility on Sweden?s sovereign debt was the highest among developed-country markets Thursday, according to measures of 10- year bonds, two-10-year spreads and credit-default swaps. The yield change in the nation?s 10-year bonds was 1.6 times the 90-day average, the Bloomberg gauge showed. Sweden isn?t part of the euro area. [Bloomberg]