Greek shares hit two-month high, bond yields sink before key meeting

Greek stocks rose to a two-month high and the country’s borrowing costs fell on Friday to levels not seen since its election in January, as optimism grew that Greece’s new government was close to reaching a deal with its international creditors.

In signs of a political retreat, Greek Prime Minister Alexis Tsipras will meet the country’s lenders to discuss a way out of its hated international bailout. Meanwhile, a new support programme could be set up at a meeting of euro zone finance ministers on Monday.

A Greek government spokesman also said that Greece would make every effort to reach an agreement with its euro zone partners, allowing it to avoid running out of money as early as next month.

“We’ve always felt that a solution would be found,” said Toscafund Asset Management analyst Takis Christodoulopoulos. “The problem appears to be in the semantics of any agreement, so that both Germany and Greece don’t lose face, but you would have thought that the lawyers would be able to sort this out.”

Athens’ benchmark ATG equity index rose around 5 percent, pulled up by banking stocks, which have surged since the European Central Bank signed off on additional emergency liquidity on Thursday.

The Athens Stock Exchange FTSE Banks Index advanced by 13.2 percent. It had fallen to a record low of 532.20 points in late January as Greece’s new leftist leaders came to power, but has since recovered by nearly 60 percent.

Greece’s economy shrank slightly in the fourth quarter of last year, data showed on Friday showed. But robust German growth pulled up the euro zone’s average expansion to 0.3 percent.

Game on two sides

Greek government borrowing costs also hit levels not seen since before the elections at the end of January.

Yields on 10-year bonds dropped 86 basis points to 9.48 percent. Shorter-dated yields fell nearly three percentage points to 15.44 percent.

But not all analysts are confident Monday’s meeting will prove conclusive.

“The Greek government is playing the game on two different fronts – what they are saying in the Greek parliament is clearly different to what they are saying at the EU meetings,» said Nordea analyst Jan von Gerich.

“Monday’s deadline is not the ultimate one, and I think negotiations will go on after that as long as there is some hope that a deal can be made.”

The Greek government’s surge to power on a pledge to end austerity has spurred populist political movements elsewhere. In Spain, for instance, the rise of the Podemos party before national elections in November is also stirring up bond markets.

For the first time in seven months, Italy’s 10-year bond yields dipped below Spain’s on Friday during a broad rally in low-rated debt.