LONDON—European government bond markets held steady Monday, with financial markets awaiting more details from a meeting of euro-zone finance ministers on a European Union plan to resolve the Greek debt crisis.
While the euro remained under pressure amid concerns on the outlook for the region's public finances, euro-zone sovereign bond markets appear to have stabilized early Monday, with the gap in yields between 10-year Greek and German government bonds unchanged Monday from Friday's levels, at 2.95 percentage points.
The cost of insuring Greek government debt against default also was unchanged, at 3.40 to 3.50 percentage points. Spanish debt also was holding onto somewhat-stronger levels. The cost of insuring debt from under-pressure Portugal was a little lower, but the spread between its 10-year sovereign bonds and bunds was wider, at 1.32 percentage points from 1.23 percentage points Friday afternoon.
Since the European Union summit pledged moral, but not financial, support for Greece on Thursday, investors appear confident a bailout deal will be agreed upon as the struggling country's debt crisis deepens. But analysts say that lack of detail on a rescue plan, and no sign that such an action would be imminent, makes the agreement a fragile one, As finance ministers of the 16 countries sharing the euro gathered in Brussels, it wasn't clear whether a detailed plan would emerge later in the day.
"Until more concrete measures are put in place... [developed European sovereign CDS] volatility will keep the market under pressure for the foreseeable future," credit strategists at Societe Generale said in a note Monday.
Currency analysts see further losses ahead for the euro, which was trading just over $1.36 against the dollar at 0915 GMT, little changed from its levels late Friday in New York.
This weakness in the currency reflects the same factors that have helped the bond markets to stabilize. Adarsh Sinha, a currencies analyst at Barclays Capital in London, said EU leaders have made it clear Greece must make tough budget cuts. That adjustment, in Greece and possibly in other struggling euro-zone nations in future, points to further euro weakness due to much weaker growth prospects and lower euro zone interest rates ahead.
What's more, the chance of a bailout, which is seen as more likely since last week's summit, suggests "greater pressure on the public finances of the core euro area countries such as Germany, in addition to the political issues it raises," Mr. Sinha said. "This is likely to pressure the euro."
Spreads on European corporate credit default swap indexes edged wider Monday morning, as credit markets waited for further news on possible support for highly indebted European sovereign borrowers.
At 0940 GMT, the Markit iTraxx Crossover index, which measures the cost of insuring the debt of 50 mostly sub-investment grade European corporate borrowers against default, was 0.03 percentage point wider versus Friday's close, at 4.99 to 5.03 percentage points. This was 0.04 percentage point wider from the level seen at 0745 GMT, although in the intervening time, Crossover spreads did drop below 4.95 percentage points.
The Europe index of 125 investment-grade borrowers widened 0.15 percentage point from an unchanged start, to 0.9125 to 0.9225 percentage point at 0930 GMT. With the U.S. shut Monday for the Presidents Day holiday, market participants said trading could be light.
Outside of Europe, Dubai's sovereign CDS spreads were around 0.20 percentage point wider at 6.50 percentage points, after news emerged over the weekend that Dubai World planned to offer creditors 60% of the money they are owed in seven years as part of its efforts to restructure its $22 billion of borrowing.
CDS are tradable, over-the-counter derivatives that function like a default insurance contract for corporate debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller. Swap buyers may be protecting investments they own or simply making bearish bets against companies or countries.
