Greek bonds rise on speculation ECB to allow bank-loan purchases

Greece’s bonds rose for the first time in four days on speculation the European Central Bank will take steps to ensure it’s able to buy loans by the nation’s banks as part of its stimulus plans.

Greek 10-year yields fell the most in almost a month after a Financial Times report said the ECB’s executive board will propose changing requirements on the quality of assets it may hold to allow it to buy some Greek and Cypriot bank loans. Equivalent-maturity Spanish and Italian bonds advanced for a second day today before central bank officials set monetary policy on Thursday.

The report that “the ECB will also buy senior tranches of Greek and Cypriot ABS below the investment grade threshold holds the potential to reverse the recent pronounced underperformance” of Greek bonds, Alexander Aldinger and Benjamin Schroeder, interest-rate analysts at Commerzbank AG in Frankfurt, wrote in a note on Wednesday. “Still, it remains questionable whether the ECB will indeed buy assets which are even not eligible in their other operations.”

Greek 10-year yields fell 16 basis points, or 0.16 percentage point, to 6.48 percent at 12.07 p.m. London time, the biggest decrease since Sept. 4. The rate had risen 47 basis points in the past three days. The 2 percent security due in February 2024 climbed 0.97, or 9.70 euros per 1,000-euro ($1,260) face amount, to 78.475.

Hedge fund

The recent selloff was the result of a particular hedge fund’s decision to reduce its exposure to Greece, a senior Greek finance ministry official told reporters in Athens on Tuesday, without mentioning the name of the fund. Greece’s debt market is shallow, and that’s the reason fluctuations are so steep, according to the official, who asked not to be named in line with policy.

The yield on Greek 10-year (GDBR10) securities rose the most since the three months through June 2012 in the third quarter.

Investors hold about 2.5 billion euros of Greek ABS, compared with 58.5 billion euros of similar notes from Spain and 203.5 billion euros from the UK, according to data compiled by JPMorgan Chase & Co. Banks have retained 19.4 billion euros of Greek ABS to use as collateral for central-bank funding, compared with 96 billion euros of Spanish retained securities, JPMorgan data show.

The rate on Spanish 10-year bonds dropped five basis points to 2.09 percent and that on similar-maturity Italian debt declined two basis points to 2.31 percent. German 10-year bund yields fell two basis points to 0.93 percent.

Euro-area government securities returned 10 percent this year through Tuesday, Bloomberg World Bond Indexes show. Greece’s were the best performers, earning 22 percent, while Germany’s added 7.3 percent, the worst performers. [Bloomberg]

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