EURO GOVT-Greek CDS hit record high, budget approved

* Greek sovereign CDS spread hits record high

* 2-/10-year yield spread holds gains after ECB liquidity op

* Technical outlook bearish for Bunds despite recent gains

* North Korea “holy war” threat sees no flight to quality

(Adds CDS info, quote, changes lead, byline, updates prices)

By Emily Flitter

LONDON, Dec 23 (BestGrowthStock) – Greek bond yields rose and the
cost of insuring the sovereign’s debt grew on Thursday as the
government approved its 2011 budget and an unsourced Greek
newspaper report said the government was seeking a possible debt
restructuring deal after 2013.

Greek five-year credit default swaps rose 40.5 basis points
to a record intraday high of 1010 basis points and ended around

The story in Ta Nea newspaper, on which the finance ministry
declined to comment, said the Greek government was looking to
possibly extend debt maturing after 2013 in a restructuring
deal. The Greek government has repeatedly ruled out any
possibility of seeking any debt restructuring.

Referring to the Ta Nea article, London-based Markit analyst
Lisa Pollack said: “The news that the Greek government has been
seeking to set down milestones to be reached by 2013 in order to
agree on loan restructuring has been seen as a negative by the

The Greek government earlier on Thursday approved its 2011
budget, agreeing to new austerity measures in addition to those
already planned. [ID:nLDE6BM07A]

Greek 10-year bond yields (GR10YT=TWEB: ) rose 19 basis points
to 12.41 percent.

The Bund future (FGBLc1: ) was 31 ticks lower at 125.16 and
traded volumes in both core and peripheral euro zone government
debt were low with a well-below-average 207,000 March Bund
futures contracts exchanged by 1600 GMT.

Euro zone sovereigns such as Spain and Portugal, under
pressure because of perceived banking weakness and deficit
problems, will face challenging market conditions when debt
issuance restarts in January to cover maturing bonds.

“We’ve got a number of peripheral issuers that have to come
to the market and there’s nervousness around that – these are
event risks. The move that we see is not big but it stems from
that sovereign tension,” said Orlando Green strategist at Credit
Agricole in London.

Traders said a threat from North Korea, which warned of a
“holy war” with the South, using its nuclear deterrent, was not
causing flight-to-quality flows into German debt. [ID:nTOE6BL01]

The 10-year German Bund (DE10YT=TWEB: ) yielded 2.980 percent,
up 2.3 basis point on the day while the two-year Schatz yield
(DE2YT=TWEB: ) was 0.95 percent.

Banks borrowed around 20.5 billion euros at the European
Central Bank’s 13-day tender to cover 200 billion euros of
expiring loans. The take-up, along with Wednesday’s 150 billion
euro demand for 3-month funds, was enough to ensure ample
liquidity and suppressed money market rates into 2011. [MMT/]

The 2-10-year German bond yield spread widened to 202 bps,
extending a widening seen in the previous session when
larger-than-expected demand at Wednesday’s tender saw two-year
debt outperform.


In recent sessions Bund futures have regained some of the
large losses seen since November, posting a more than 100-tick
gain from last Friday’s close, but the outlook remains bearish,
according to technical charts.

The Moving Average Convergence-Divergence indicator, which
measures market momentum, remains firmly below the zero level.

“(This suggests) strength continues to be limited in time
and extent, offering selling opportunities at higher levels,
against what is still a longer-term bearish trending condition,”
said Richard Adcock, technical analysts at UBS.

There was more bad credit ratings news for the euro zone as
Standard and Poor’s lowered its outlook for Slovenia’s foreign
currency credit to negative late on Wednesday. [ID:nN22109688]

A string of negative ratings actions in recent weeks has
kept investors wary of taking on debt from the euro zone’s
higher yielding states.
(Additional reporting by William James; editing by Stephen

EURO GOVT-Greek CDS hit record high, budget approved