BUSINESS

Greek bonds declined in days before provisional deal was reached

David Goodman

Greece’s government bonds posted their first weekly drop this month as the nation negotiated with its euro- area creditors on its future financing plans.

After falling on Monday and Tuesday, 10-year securities pared that decline in the rest of the week, pushing yields back below 10 percent, as speculation built that a deal would be reached. While finance ministers agreed after European markets closed on Friday to a provisional accord that extends bailout funds for four months, the bonds may face more volatility next week as officials still need to review a list of economic measures Greece will undertake to keep the aid flowing.

“The week has been dominated by Greek headlines,” Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan, said before the details of the agreement were announced. “Greek assets have been on a rollercoaster. It’s hard to tell what kind of progress is being made.”

Greece’s 10-year bond yields rose 63 basis points, or 0.63 percentage point, this week to 9.89 percent at the 5 p.m. London close on Friday. The 2 percent security due February 2025 fell 2.86, or 28.60 euros per 1,000-euro ($1,138) face amount, to 60.19.

The nation’s three-year yield increased 78 basis points to 16.62 percent this week.

Finance ministers spent the week grappling for a plan to extend Greece’s bailout program, which was due to expire at the end of February. The text of the agreement struck in Brussels allows the Mediterranean nation to lower previously agreed targets on reaching a primary budget surplus, potentially freeing up money to meet some of the newly elected Syriza party’s anti-austerity election pledges.

Roadblocks Cleared

“The biggest political roadblocks to a deal have now been crossed,” Lena Komileva, chief economist at G Plus Economics Ltd. in London, wrote in an e-mailed note. “This creates the setting for a strong market risk rally and some decompression in core yields in favor of peripheral markets on Monday,” she wrote, referring to rates on bonds from the euro area’s higher- and lower-rated securities.

Amid the negotiations, bondholders have remained relatively calm. The Bloomberg Greece Sovereign Bond Index, a market-value weighted measure of Greek bonds, was at 91.83 on Friday, up 1 percent this year and 26 percent above its five-year average.

Greece’s 10-year yield is also below its five-year average of 13.85 percent, and an all-time high of 44.21 percent set in 2012. That shows the contrast with movements in debt markets earlier this decade, which toppled governments, pushed countries to accept financial bailouts and took the region to the brink of breakup.

[Bloomberg]

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