Bonds: Gross says sell Bunds, as EU president sounds optimistic note

Sovereign bond markets were relatively calm on Tuesday, as traders tried to discern just how long the stand-off in negotiations between Greece and its international creditors would last and what the end game might be.

The decision by Athens, on 20 April, to force local governments to deposit their cash at the central bank, was expected to yield the country´s government additional breathing space. Greece may now be able to make payments totallng approximately €2.4bn and falling due at the start of May. However, it faced even larger payments in June.

Yields on 10-year Greek government bonds rose by 28 basis points to reach 13.60%.

Traders took particular note of remarks by European Central Bank (ECB) vice president Vitor Constancio that a Greek sovereign default would not necessarily prompt the ECB to withdraw its support for Greek banks.

For Eurogroup president Jeroen Dijsselbloem there are reasons for optimism regarding the negotiations.

Acting as a backdrop, three-month Euribor fixed below 0% for the first time ever, leading analysts to weigh in with their analysis on whether the move would stoke consumption or restrain bank lending.

In remarks to Bloomberg TV Janus Capital´s Bill Gross said he saw German Bunds as the “short of a lifetime,” although most investors probably want to wait between 12 to 18 months, which iswhen the European Central Bank´s programme of quantitative easing will end.

German Bund yields finished the session slightly higher, rising by two basis points to 0.10%.

Ten year US Treasury yields were largely unchanged on the day at 1.90%.