EURO GOVT-Ratings upgrade, ECB collateral move boost Greek debt

Wed Dec 19, 2012 12:32pm EST

Related Topics

* Fiscal cliff optimism, better German data improve mood
    * Lower-rated debt rallies, Portuguese yields below 7 pct
    * Greek debt rally on ECB collateral move


    By Marius Zaharia and Ana Nicolaci da Costa
    LONDON, Dec 19 (Reuters) - Greek government bonds rallied on
Wednesday after a rating upgrade and a move by the European
Central Bank to allow the paper to be used as collateral for its
funding again.
    Better German data and optimism on the U.S. fiscal outlook
increased the appetite for high-yielding assets, boosting
Spanish and Italian debt and pushing Portuguese 10-year yields
below 7 percent for the first time since February 2011.
    By far the best performer, though, was Greece.
    Standard & Poor's upgraded the country's sovereign rating to
B-minus from selective default late on Tuesday, while the
European Central Bank said on Wednesday that Greek debt will
again be eligible as collateral at its funding operations. That
should make the paper more attractive for domestic banks.
  
    The yield on Greece's 2023 bond fell about a
point and a half on the day, to as little as 11.357 percent, the
lowest since the bond was issued as part of a debt restructuring
in March.
    The current yield level is just over a third what it was in
early June when fears of a Greek exit were most intense.
    "The chance of Greece leaving (the euro zone) has
diminished," said Alan McQuaid, chief economist at Merrion
Stockbrokers in Dublin. "The euro zone is slowly moving in a
direction where it is clearer that it's not going to blow up." 
    "Going back to (President Mario) Draghi's comments that (the
ECB) will do whatever it takes to save the euro, there seem to
be more and more people believing that's going to be the case."
    Easing Greek exit fears, as well as a track record of
sticking to the terms of a painful bailout deal, have helped
Portuguese debt rally massively this year as well.
    Portuguese 10-year yields fell 13 basis points
on the day to 6.90 percent, having traded above 17 percent at
the start of the year.
    Spanish and Italian benchmark yields have dropped by 1-2
percentage points since Draghi's late July comments, which were
followed by the announcement the ECB would buy bonds of
countries seeking help from the euro zone's rescue fund.
    Yields on 10-year Spanish bonds were 6 bps
lower on the day at 5.27 percent and the Italian equivalent
 fell 7 bps to 4.39 percent.
    "I would recommend to buy Spain on the front of the curve,
both outright or versus Italy," said Sergio Capaldi, fixed
income strategist at Intesa SanPaolo. "It's a one way bet."
    That's because if you think Madrid will need a bailout, you
would have to price in central bank support, while any optimism
on Spain would likely benefit that part of the curve most, he
said.
    
    BUNDS FALL
    German Bunds were down 20 ticks on the day at
144.21, maintaining their falling trend seen in recent sessions.
    Their safe-haven appeal faded after a survey from the
Munich-based Ifo think tank showed morale at German businesses
climbed in December as their confidence in the outlook rose at
its fastest rate in 2-1/2 years..
    Hopes of a U.S. budget accord rose this week after President
Barack Obama made a concession, offering to limit tax increases
to incomes exceeding $400,000 per household - a higher threshold
than the $250,000 he had sought earlier. 
    Despite the apparent improvement in risk appetite, though,
losses for Bunds were seen limited.
    In the case of a deal, Bunds would "knee-jerk down but I
don't see why we are going to collapse on it. I don't think
that's the only reason Bunds have been reasonably well bid
recently," a trader said.
    "The growth outlook in Europe looks awful and those
forecasts are presumably based on the fiscal cliff getting
sorted out."
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