Tags: Portugal | bonds | ECB | bund

Portugal's Bonds Drop on Fitch Rating as ECB Rift Supports Bunds

Monday, 13 October 2014 10:51 AM

Portugal’s 10-year government bonds declined for the first time in nine days after Fitch Ratings scuppered bets on an immediate credit upgrade.

The decline pushed the 10-year yield up from a record low. Greek securities fell even as Prime Minister Antonis Samaras survived a confidence vote. German bonds were within four basis points of an all-time low as European Central Bank President Mario Draghi and Bundesbank chief Jens Weidmann clashed over boosting the euro-area economy. Finland’s bonds were little changed after the nation lost its AAA ranking, while France’s withstood a cut in the rating outlook by Standard & Poor’s.

“Market participants were disappointed that Portugal has remained with all three main agencies below investment grade,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “It is unwinding some of the constructive market action we’ve seen last week in view of a possible upgrade.”

Portuguese 10-year yields rose seven basis points, or 0.07 percentage point, to 3.03 percent at 3:10 p.m. London time. They reached 2.92 percent on Oct. 10, the least in data compiled by Bloomberg going back to 1997. The 5.65 percent bond maturing February 2024 fell 0.675, or 6.75 euros per 1,000-euro ($1,269) face amount, to 121.01. Yields dropped in each of the past four weeks, closing at 2.96 percent before the weekend, from 3.24 percent on Sept. 12.

Portuguese Ratings

Fitch affirmed Portugal’s credit ranking at BB+ with a positive outlook on Oct. 10. Moody’s Investors Service and S&P also rate the country below investment grade. It exited a 78 billion-euro three-year rescue from the European Union and the International Monetary Fund in May without the safety net of a precautionary credit line.

Greece’s bonds slid even as Samaras won the confidence motion he called to head off an opposition challenge. Yields on the nation’s 10-year securities have climbed for five successive weeks after the government proposed an early exit of its international bailout and associated conditionality. The government is battling against instability as it pushes through budget cuts in an economy suffering the effect of a six-year recession that has pushed the unemployment rate to 26.4 percent.

Rates on Greece’s 10-year bonds jumped 12 basis points to 6.72 percent, ending a two-day drop.

German yields were little changed amid investor skepticism that the ECB strategy to revive inflation and economic output will work without monetary expansion through a form of quantitative easing.

Split Exposed

Weidmann exposed a split among ECB leaders when he downplayed Draghi’s statement at weekend meetings of the International Monetary Fund in Washington that he’s ready to expand the central bank’s balance sheet by as much as 1 trillion euros. A target value isn’t set in stone, the German said.

The 10-year bund yield rose less than one basis point to 0.90 percent, after falling to a record low 0.858 percent on Oct. 9.

France’s 10-year rate was at 1.26 percent, also little changed from the end of last week. Finland’s was at 1.03 percent. S&P downgraded the nation to AA+ on Oct. 10, the same day it cut France’s outlook.

Moves by French and Finnish bonds today are in line with a trend of investors largely ignoring downgrades. Losing the AAA rating with S&P on Jan. 13, 2012, didn’t prevent French securities staging a rally that pushed 10-year yields to a record-low 1.203 percent last week.

“The ratings move did not deliver any immediate blows” for France and Finland, indicating “they weren’t a huge upset for the market,” said Jan von Gerich, a fixed-income analyst at Nordea Bank AB in Helsinki.

German government securities returned 7.6 percent this year through Oct. 10, Bloomberg World Bond Indexes show. France’s earned 9.1 percent and Finland’s 7.9 percent.

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Portugal's 10-year government bonds declined for the first time in nine days after Fitch Ratings scuppered bets on an immediate credit upgrade. The decline pushed the 10-year yield up from a record low.
Portugal, bonds, ECB, bund
Monday, 13 October 2014 10:51 AM
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