Bonds gain on talk of solution

Greek bonds led a rally in debt from Europe?s high-deficit nations on Tuesday amid speculation that European Union policymakers are closer to resolving the region?s debt crisis.

Officials are believed to be approaching a consensus that will enable a rescue fund to buy distressed governments? debt in private placements, Bloomberg reported, citing three unnamed people familiar with the discussions.

Moves under discussion include secondary market purchases, using loans for governments to retire traded debt at a discount, and better aid terms, the sources said.

The spread between the Greek 10-year bond and the German bund narrowed to 783 basis points on Tuesday. It was standing at 870 bps in mid-January. Greek stocks also jumped on Tuesday on bank-led gains, outperforming their advancing European peers.

Meanwhile, Nomura International said on Tuesday that Greece is likely to reorganize its debt payments after a March meeting of European policymakers and will implement the plan without triggering a default.

?People may be willing to extend the maturities and lower coupon payments on Greek bonds,? said Nick Firoozye, Nomura?s head of interest rate strategy in London.

?The exchanges we are talking about would be purely voluntary. It?s possible to do the exchanges without triggering credit default swaps.?

Greece may succeed in extending the maturities of its bonds because domestic holders, central banks and investors intending to hold the securities to maturity would be more willing to accept this than realize a loss, Firoozye said.

Credit default swaps on Greek debt dropped 37 basis points to 823 on Tuesday, according to CMA. A basis point on a swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline signals improvement in perceptions of credit quality.

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.