European Bonds Little Changed After UAE Support for Lenders
Nov. 30 (Bloomberg) -- European government bonds werelittle changed after the United Arab Emirates’ central bank tooksteps to limit the fall-out from a possible default by DubaiWorld, the state-owned holding company.
The yield on the 10-year bund headed for a monthly decline.Bonds rose last week after Dubai’s plan to delay debt paymentsled investors to seek the safest assets. Euro-zone consumerprices rose for the first time in seven months in November, theEuropean Union statistics office in Luxembourg said today.Policy makers will keep the region’s main interest rateunchanged at a Dec. 3 meeting, according to a Bloomberg survey.
“The support package from the U.A.E. should take theluster off bonds,” said Nick Stamenkovic, a fixed-incomestrategist in Edinburgh at RIA Capital Markets Ltd., a brokerfor banks and money managers. “Investors may be reluctant topush prices significantly higher ahead of the ECB meeting”because of the risk of a surprise, he said.
The yield on the German bund, Europe’s benchmark debtsecurity, was little changed at 3.16 percent as of 3:30 p.m. inLondon, for a decline of 7 basis points in the month. The 3.25percent security due January 2020 rose 0.04, or 40 euro centsper 1,000-euro ($1,503) face amount, to 100.76. The two-yearnote yield climbed 1 basis point to 1.25 percent.
The U.A.E. central bank said yesterday that lenders will beable to borrow money from the regulator for half a percentagepoint above the three-month local benchmark interest rate, andsaid it “stands behind” both domestic and foreign lenders.
Credit-Default Swaps
Dubai credit-default swaps tightened for the first time ina week, declining 72 basis points to 574 basis points, accordingto prices from CMA Datavision, as investors reduced bets theemirate will default on debt payments.
“The situation in Dubai may be a controllable event but itreminds us how much governments are potentially on the hook forall over the world,” fixed-income analysts led by Jim Reid atDeutsche Bank AG wrote in a note today. “History points towardmany incidents of sharp devaluations, high inflation and/ordefaults after a crisis of this magnitude.”
Consumer prices in the 16-nation euro region rose 0.6percent from a year earlier, the EU statistics office saidtoday, more than the 0.4 percent median estimate of 30 analystsin a Bloomberg survey.
German Bundesbank President Axel Weber said today thatEurope’s largest economy may push down its budget deficit soonerthan expected.
Quicker Than Expected
“It could be that Germany gets out of its current deficitsituation quickly and more cheaply than expected,” Weber saidat an event in Berlin today.
The difference in yield, or spread, between Greek andGerman 10-year government bonds narrowed 12 basis points to 182basis points. It reached 202 basis points on Nov. 26, the mostsince May 4. The spread between Irish and German 10-year bondyields narrowed 3 basis points to 168.
The 10-year Italian bond-futures contract expiring inDecember, used as a proxy for the bonds of so-called peripheralmarkets, rose 0.3 percent to 117.10. Investors traded 2,102contracts, compared with 10,373 contracts on Nov. 27.
“The easing in tensions on periphery should reducevolumes,” said Giuseppe Maraffino, a strategist in Milan atUniCredit SpA. “Investors used the contract to hedge theirpositions on periphery” last week, he said.
Belgium sold 1.1 billion euros of 4 percent 10-year bondsat an average yield of 3.56 percent. It sold 735 million eurosof 2 percent bonds due in 2012 at an average yield of 1.50percent and 870 million euros of 4 percent bonds due in 2022 atan average yield of 3.87 percent.
Bunds May Rise
The spread between German and Belgian 10-year bondsnarrowed 2 basis points to 41 basis points.
German 10-year government bonds may rise on bets theEuropean Central Bank will refrain from emphasizing thewithdrawal of economic stimulus measures at this week’s meeting,according to High Frequency Economics.
“We do not expect the ECB council to motivate speculationabout exit strategies at this week’s meeting, and we surelyexpect no rate changes,” Carl B. Weinberg, chief economist inValhalla, New York, wrote today in a report. “This all sets upa chance for 10-year bunds to prod closer toward the 3 percentfloor they have not yet been able to break. All euro-zone yieldcurves should flatten.”
To contact the reporter on this story:Paul Dobson in London at pdobson2@bloomberg.net
Last Updated: November 30, 2009 10:38 ESTSource: Bloomberg
