November 13, 2012 / 12:45 PM / 5 years ago

EURO GOVT-Bunds pare gains as Greek aid deal seen closer

* Greece gets more time, but aid delayed

* Bild report read as Germany wanting deal to be done

* Athens sells T-bills to roll over expiring debt

By Marius Zaharia

LONDON, Nov 13 (Reuters) - German Bunds pared gains on Tuesday after a media report that Germany wanted to bundle three Greek aid tranches into a single payment -- a detail some investors interpreted as a sign that a deal for Athens was near.

On Monday, international lenders stopped short of disbursing Greece’s next aid tranche under its bailout programme, clashing over how long the country should be given to reduce its debt to sustainable levels.

Asked about the report in Germany’s Bild newspaper, a German finance ministry spokeswoman said no decision had yet been made on loan payments to Greece.

“The report made some Bund investors more confident that the deal is close to being done,” one trader said.

Bund futures were last 3 ticks higher on the day at 143.20, having earlier hit a two-month high of 143.48. Ten-year yields were flat at 1.342 percent.

The lack of a fresh aid payment meant Athens had to roll over short-term borrowing.

Greece sold just over 4 billion euros of one- and three-month T-bills. Non-competitive bidding in the next two days is expected to cover the 5 billion euros of debt maturing on Nov. 16 and buy the country time as talks for new money go on.

The International Monetary Fund and the euro zone clashed over a long-term target to bring Greece’s debt down to 1.2 times its economic output, a level considered sustainable.

The real sticking point behind the figure is that the IMF is pushing for the euro zone to take losses on Greek debt -- something that the bloc’s paymaster Germany, which holds elections next year, says is illegal.

“The IMF is pushing for another debt restructuring ... The main thing now is to find an agreement for the next tranche to pay back the bills next month and this discussion hasn’t finished yet,” ING rate strategist Alessandro Giansanti said.

Giansanti said 10-year German yields could fall towards July’s lows of 1.20 percent if weeks go by without an agreement.

Jean-Claude Juncker, the chairman of euro zone finance ministers, said a further Eurogroup meeting would take place on Nov. 20, while officials said more talks could be required the following week to nail down a new deal.


The fact that Greece was given two extra years to meet one budget target required by its bailout deal, however, showed the lenders wanted the aid programme to continue, analysts said.

“There seems to be quite a big difference of opinion between the IMF and euro zone finance ministers ... but our view is still that Greece won’t leave the euro zone,” Rabobank rate strategist Lyn Graham-Taylor said.

Strategists at Helaba Landesbank Hessen-Thueringen said that if investors remained risk averse Bunds could target 144.37, the Aug. 29 high. If the trend reversed, Bunds should find support at Nov. 8’s low of 142.57 or the 100-day moving average at 142.26.

Investors were also watching U.S. lawmakers’ efforts to reach a deal on budget cuts and avoid automatic tax hikes and spending reductions worth about $600 billion next year. The so-called “fiscal cliff” could send the U.S. back into recession and hurt the global economy.

“That is a big support for (Bunds),” another trader said. “Greece and the U.S. are the main drivers at the moment.”

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