By Matthew Brown Feb. 10 (Bloomberg) -- Greek bonds soared for a second day as Germany weighed giving Greece assistance to help the government tackle the European Union’s biggest budget deficit. German Finance Minister Wolfgang Schaeuble briefed lawmakers today on steps he may take to aid Greece. Michael Meister, financial-affairs spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday the government is “considering support.” Greece is bracing itself for a wave of strikes today by public-sector unions protesting planned austerity measures. “Germany’s announcement is bringing some relief for those peripherals which came under most pressure, such as Greece,” said David Schnautz, an interest-rate strategist at Commerzbank AG in Frankfurt. “There should be room for more tightening.” Greek 10-year yields fell 47 basis points to 5.92 percent at 8:29 a.m. in London, the most since at least 1998. Two-year yields fell 52 basis points to 5.76 percent after sliding 32 basis points yesterday. The Greek-German 10-year yield spread narrowed 55 basis points to 269 basis points. The Spanish-German spread narrowed 9 basis points to 82 basis points, and the Irish-German spread narrowed 7 basis points to 162 basis points. German 10-year bund yields rose 8 basis points to 3.23 percent, after earlier gaining 9 basis points, the most since Nov. 11. German two-year yields added 3 basis points to 1.06 percent. “Bunds are under pressure because of the risk Germany is incurring,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking. “We should be cautious on betting on a one-way road for peripherals before we see the details of any package.” ‘Credit Differentiation’ The bonds of Spain and Italy were little changed. The Spanish 10-year bond yield rose 1 basis point to 4.05 percent, while the Italian 10-year yield was at 4.04 percent. “Although the support plan should have an initial positive effect on the intra-European spread space, we would not be too ambitious about the potential for compression,” Charles Diebel, a senior European interest-rate strategist in London at Nomura International Plc, wrote in a report today. “Simply put, the idea of credit differentiation is now firmly established in the market psyche.” Schaeuble declined to comment on the possibility that Germany is preparing to help Greece following his address to lawmakers. “I have no intention to participate in speculation,” he told reporters. A German official said yesterday nothing will be agreed upon before tomorrow’s European Union summit in Brussels and no decision has been made on whether aid would take the form of loan guarantees. “We are talking about support in the broad sense,” Olli Rehn, the EU’s new economic affairs commissioner, said yesterday. Meister said aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.” To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

Source