European government bonds up as Greek restructuring 'not needed'
Markets were overestimating risk of default by Greece, says Klaus Regling of EFSF
Published 21/01/2011 | 05:00
European government debt shrugged off falls seen in most other markets yesterday, even with renewed talk of a Greek default.
Government bonds across Europe were stronger after Klaus Regling, who manages the European Financial Stability Facility (EFSF) bailout fund, said there was no need for Greece to restructure its debt.
"The International Monetary Fund, the European Commission and the European Central Bank all assume that Greece doesn't need debt restructuring, and that markets are overestimating the risk," Mr Regling told Deutschlandfunk radio.
The comments came after widespread reports citing unnamed German officials that Greece is planning to default or use EFSF funds to buy back and cancel its government bonds at a discount.
Anglo Irish Bank, AIB and Bank of Ireland have already reduced their debt with the same tactic.
The yield on Greek 10-year bonds had increased to 11.34pc on the news but ended yesterday at 11.1pc after Mr Regling's comments.
Mr Regling said there was no pressing need to increase the size of the EFSF bailout fund above the €440m it can currently raise.
However, he said the fund should be able to loan more of the funds to struggling countries. The EFSF currently needs to hold some of the money it raises by selling bonds as cash to protect its credit rating.
The political crisis at Leinster House had no impact on Irish government bonds last night. The cost of insuring Irish government bonds against default was unchanged at around 6pc a year according to data provider Markit.
Markit's government debt analyst Gavan Nolan said a Fianna Fail defeat at the election in March had already been priced in by the markets.
The yield, or interest being charged, on Ireland's 10-year government debt was slightly lower yesterday at 8.623pc with trading in the bonds very light.
Meanwhile, investors should sell the euro against the pound as the UK government's "credible" fiscal restructuring will boost the nation's currency, Nomura International said.
Sterling will also benefit as the likelihood of UK inflation remaining elevated may spur the Bank of England to raise interest rates, according to a team of analysts including Jens Nordvig, managing director of currency research at the unit of Japan's largest brokerage.
Buying of gilts by overseas investors will also help the pound, the analysts wrote.