Friday 30 September 2016

European bond markets shrug off Greek crisis

Eshe Nelson

Published 08/07/2015 | 02:30

Newly appointed Greek Finance Minister Euclid Tsakalotos
Newly appointed Greek Finance Minister Euclid Tsakalotos

Euro-area government bonds advanced yesterday as political leaders met to discuss the Greek funding position amid speculation fixed-income markets would remain supported regardless of the talks' outcome.

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Austrian securities led gains with 10-year yields falling the most in three years. In a sign the wider market expects to be supported regardless of what happens in Greece some analysts said a bailout deal for Greece was still possible, and others said a failure to agree on a rescue package would prompt the European Central Bank (ECB) to protect bondholders from a wider fallout.

"It seems the market does not stop believing in a last- minute deal," said Felix Herrmann, a market analyst at DZ Bank. "After the ECB put the screws on Greek banks, there is indeed the need and the possibility of such a last- minute deal."

Austria's 10-year bond yield fell 0.13pc, to 1.09pc and Irish 10 year bond yields dropped 0.035pc to 1.57pc

While the ECB said that it was wary of "moral hazard" arising from overly generous conditions on its emergency liquidity assistance, it's still buying €60bn a month of bonds, boosting demand for the rest of the region's debt. That's helping increase spare liquidity in the euro zone.

Bond repayments this month may also add liquidity, said Christoph Rieger of Commerzbank in Frankfurt. ECB excess liquidity rose to €396.8bn on Monday as overnight deposits in the central bank reached the highest since May 2013.

Demand for bonds was also bolstered by a drop in commodity prices as Chinese stocks extended a rout into yesterday. Lower commodity prices damp the outlook for inflation, which erodes the spending power of fixed payments on bonds.

German bunds, Europe's benchmark securities, advanced for a third day. (Bloomberg)

Irish Independent

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