German Bonds Rise, Portuguese Debt Drops on Austerity Measures
By Paul Dobson, September 24, 2010, 6:41 AM EDT
Sept. 24 (Bloomberg) — German 10-year bonds climbed and debt from peripheral euro-area nations slumped on concern political wrangling will make it harder for nations to trim their budget deficits.
Dr. Pinna says:
International investors are skeptical about the ability of Portugal to completely pay its debts. They want a “premium” to buy Portuguese bonds. This “premium” is the highest in history.
If Portugal does not reduce its spending, the “premium” will make the bonds worthless.
The extra yield investors demand to hold Portuguese bonds instead of benchmark bunds widened to a record for the second consecutive day. Diario Economico reported that Prime Minister Jose Socrates and Pedro Passos Coelho, leader of the opposition, met twice this week to discuss the 2011 budget before talks broke down. Spain’s Finance Minister Elena Salgado is due to present her budget today.
“Reports budget talks in Portugal broke down are driving the concern about austerity,” said Marcel Bross, an interest- rate strategist at Commerzbank AG in Frankfurt. “As always, bunds are in demand as safe haven during the crisis.”
The bund yield fell 2 basis points to 2.27 percent as of 11:28 a.m. in London, after declining to 2.26 percent, the lowest since Sept. 9, The 2.25 percent bond due in September 2020 rose 0.18, or 1.80 euros per 1,000-euro ($1,341) face amount, to 99.85.
Portuguese 10-year bonds fell, sending the difference in yield, or spread, with bonds to 420 basis points, or 4.20 percentage points. The Irish 10-year spread to bonds also reached a record, at 429 basis points. Spain’s spread was 6 basis points wider at 190 basis points and Belgium’s reached 96 basis points, from 89 basis points yesterday.