Irish bond yields remained around 10 per cent today and German 10-year government bonds fell, as stock-market gains boosted demand for higher-yielding assets and European Union leaders met to seek a solution to the region's debt crisis.
Portuguese bonds fell, pushing the 10-year yield to a euro-era record, as president Anibal Cavaco Silva prepared to meet political parties to discuss prime minister José Sócrates's resignation. Data showed European loan growth accelerated last month, while German business confidence stayed near a record in March, fuelling speculation the sovereign debt crisis won't deter policy makers from raising interest rates next month.
"We're seeing a reduction in risk aversion, and that's why yields are heading higher," said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group AG in Zurich. "The fundamental economic picture is solid. The direction of yields is likely to be upward."
The yield on the benchmark 10-year Irish bond was 10.019 per cent at 11.29am, while the two-year note was down slightly at 9.8071 per cent.
The German 10-year bund yield increased two basis points to 3.26 per cent at 10.30am, while yields on two-year notes were three basis points higher at 1.71 per cent. The 10-year yield has increased seven basis points since March 18th.
Portugal's 10-year yield advanced as much as 14 basis points to 7.80 per cent. The difference in yield investors demand to hold the securities instead of German bunds widened 10 basis points to 451 basis points, the most since November. The Portuguese two-year yield rose 25 basis points to 6.96 per cent.
Yields surged yesterday after Mr Sócrates's resignation stoked concern the country may struggle to repay about €9 billion of debt due by June. Fitch Ratings cut the nation's debt rating to A- from A+ yesterday, and Standard and Poor's followed with a cut to BBB from A-, citing "increased political uncertainty".
Standard and Poor's today said it may "reassess" the sovereign debt ratings of Greece and Portugal when full details of the European Stability Mechanism emerge and if its concerns are confirmed by the decisions of the European Council.
Mr Sócrates' plans for cutting the budget deficit were rejected by opposition leaders. Cavaco Silva was scheduled to meet in Lisbon this morning with each of the six parties with seats in parliament.
Loans to European households and companies rose 2.6 per cent from a year earlier after rising an annual 2.4 percent in January, the European Central Bank said today. The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, was 2 per cent, the highest since August 2009.
German business confidence fell less than economists forecast in March. The Munich-based Ifo institute said its business climate index was at 111.1 this month, after climbing to 111.3 in February, the highest reading since records for a reunified Germany began in 1991.
Additional reporting: Bloomberg
