German yields negative as Merkel-Sarkozy talks fail to reassure
Published 10/01/2012 | 05:00
GERMAN two-year notes rose, pushing yield to a record low, after a meeting between Chancellor Angela Merkel and French President Nicolas Sarkozy failed to ease concern that the region's debt crisis will spread.
Germany auctioned six-month bills at a negative yield for the first time as investors sought out the safest assets.
Ten-year bunds pared losses after a report showed industrial output in Europe's largest economy declined, adding to signs growth may have stalled. Greek notes fell, with yields rising to a record, amid concern its writedown deal with private-sector creditors will fail.
"It's someone saying I need to park the money super safe," said Luca Jellinek, head of European rate strategy at Credit Agricole Corporate and Investment Bank in London. Shorter-maturity notes "are becoming somewhat divorced from the mainstream in the sense that they're being utilised by investors to park liquidity in a time of uncertainty."
Ms Merkel and Mr Sarkozy outlined plans that may see euro-area leaders complete their new budget rulebook by January 30. They are also considering accelerating capital contributions to the bailout fund being set up this year to stem the debt crisis.
Industrial production in Germany fell 0.6pc from October, when it rose 0.8pc, the Economy Ministry said yesterday. Economists forecast a 0.5pc drop.
Greek notes dropped for the third time in four days amid speculation that the current restructuring plan involving so-called private-sector participation would fail.
Greece is "one of the things that needs to be resolved fairly quickly", said Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London. "As the speculation starts to appear about bigger haircuts, potential failure of the PSI talks, there's a bit more pessimism" about Greece.
Greece must do more to consolidate its finances, or private creditors must write off a larger share of their claims or euro- area countries have to add more funding, 'Der Spiegel' reported on January 7, citing an IMF document. The yield on the Greek two-year yield climbed 41 basis points to a record 176pc. The price fell to 21pc of face value.