Greek markets bask in debt deal relief

Short-dated Greek bond yields dropped 300 basis points and stocks hit a 2-1/2-month high on Tuesday as Greek investors returning from holiday had the first chance to react to the prospect of the country gaining a financial rescue deal.

The four-month extension to eurozone funding reached on Friday after the country’s new leftist government climbed down on initial demands, still hinges on its creditors accepting a list of reform plans.

A source close to the European Commission said on Tuesday that the list received around midnight was “a valid starting point” for talks over its bailout.

Eurozone finance ministers are expected to discuss the reform plans in a conference call later on Tuesday.

“The deal between Greece and its creditors reduced the volatility in the market and we would expect that to continue this week as the final agreement seems to be imminent,” analysts at Piraeus Bank said in note.

Greek 10-year yields fell to a one-month low, down 90 bps at 9.25 percent, while three-years dropped 300 bps to 13.54 percent – both were at levels seen before an election that propelled Athens’ new anti-austerity government to power in late January.

Greek five-year credit default swaps fell 92 bps to 1,373 basis points, according to Markit.

Greece’s top share Athex index rose 7 percent in early deals to hit a 2-1/2 month high, with Greek banks up as much as 14 percent.

Other lower-rated debt in the eurozone also dipped, extending falls seen on Monday when Greek markets were shut for a local holiday.

Italian and Spanish bond yields fell 2 bps to 1.47 and 1.39 percent, respectively, while Portuguese bond yields dipped 1 basis point to 2.15 percent.

The gap between Italian and German yields, and Portuguese and German yields, were both at their smallest since May 2010.