German Yield Falls Below Zero as Greece Prepares Austerity Vote

Bloomberg: German government bonds rose, pushing two-year note yields below zero for the first time in two months, as Greece prepared for a vote as soon as this week on austerity measures needed to keep the nation in the euro.

Ten-year bund yields fell to the lowest level in more than four weeks as Greek Prime Minister Antonis Samaras sought political support for the budget plans. Spanish 10-year yields reached a two-week high before the country sells bonds on Nov. 8. Germany’s Sentix research institute said investor confidence in the euro-area economy improved this month.

“The market is clearly in a more negative sentiment and we can see Spanish yields creeping higher again,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. On Greece “we are now approaching a more decisive phase again and investors will look for safety until we get past those hurdles,” he said.

Germany’s two-year yield slipped less than one basis point, or 0.01 percentage point, zero percent at 11:14 a.m. London time, and reached minus 0.014 percent, turning negative for the first time since Sept. 6. The zero percent note due September 2014 rose 0.01, or 10 euro cents per 1,000-euro ($1,280) face amount, to 100.

A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.

Samaras Pledge

Germany’s 10-year yields fell one basis point to 1.44 percent, after touching 1.42. the lowest since Sept. 28.

Samaras pledged yesterday the raft of wage and pension cuts in the latest austerity package will be the last and Greek society won’t tolerate any more, according to comments made to lawmakers of his New Democracy party. The first parliamentary vote in Athens may come as early as Nov. 7.

The yield on Greece’s 2 percent securities maturing February 2023 were little changed at 18.18 percent, after jumping 90 basis points last week.

Sentix said its index measuring sentiment in the 17-nation currency bloc increased to minus 18.8 from minus 22.2 in October. The median prediction of 11 economists in a Bloomberg News survey was minus 21.

Economic confidence in the euro area fell for an eighth month to the lowest in more than three years in October, the European Commission in Brussels said Oct. 30. The European Central Bank will give its latest interest-rate decision on Nov. 8. Reports tomorrow will show that manufacturing and services industries in the region contracted last month, according to Bloomberg surveys of economists.

No ‘Pickup’

“There doesn’t seem to be any kind of pickup in the economic momentum and that’s also hitting Germany stronger than it was previously and if we have to assume that policy will remain loose, it explains why bund yields” are falling, said Michael Markovich, head of global interest-rates research at Credit Suisse Group AG in Zurich. “We continue to have these questions” about Greece and Spain, he said.

Spain’s 10-year yield climbed seven basis points to 5.73 percent, after climbing to 5.76 percent, the highest since Oct. 17, and adding to last week’s increase of seven basis points.

Volatility on Austrian bonds was the highest in euro-region markets today, followed by those of Spain, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.

The yield on the Austrian 10-year bond was one basis point lower at 1.95 percent, the lowest level since Oct. 16.

The Netherlands and France are due to sell bills today.

German bonds have returned 3.5 percent this year through Nov. 2, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 3 percent and Italy’s earned 17 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh