ECONOMY

Greek notes rise a fifth day as euro area approves aid extension

Greece’s bonds rose as euro-area finance ministers approved a bailout extension, deferring a showdown over the nation’s future in the currency bloc.

Greek three-year notes posted their longest run of gains in a month after Prime Minister Alexis Tsipras’s government pledged to revamp tax collection, consolidate pension funds and maintain sales of state-owned assets. Spanish and Italian securities advanced and yields on Irish and Portuguese debt fell to records earlier Tuesday as the prospect of a Greek deal boosted demand for the bonds of region’s most indebted countries.

“It’s clearly the effect of the deal with Greece,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “It looks very likely they will do it. We can still go a bit further” in the periphery countries, he said.

Greece’s three-year yield fell 267 basis points, or 2.67 percentage point, to 12.39 percent as of 4:52 p.m. London time on Tuesday, after declining 349 basis points in the previous four days. The 3.375 percent note due in July 2017 rose 4.41, or 44.10 euros per 1,000-euro ($1,133) face amount, to 82.255. The five-day run of price gains is the longest since the period ended Jan. 14.

The accord paves the way for the European Central Bank to continue its support of Greek banks, while buying time for the euro area’s most indebted nation to convince its international creditors that it will deliver.

Creditor Support

As part of Tuesday’s decision, the ECB, the European Commission and the International Monetary Fund signaled their support for Greece’s commitments. Their assent gives Greece until April to refine the details and show the finance ministers how they will follow through. Greece can’t tap more bailout funds, including the next tranche of about 7 billion euros, unless it passes the authorities’ review.

IMF Managing Director Christine Lagarde and ECB President Mario Draghi both said that the Greek measures still need to be scrutinized.

Greek 10-year yields dropped 71 basis points to 8.58 percent. The difference between the bid and offer yields for Greece’s 10-year securities, a measure of the bonds’ liquidity, was about 25 basis points, according to data compiled by Bloomberg. In contrast, the spread on similar-maturity German bunds, the euro region’s benchmark securities, was 0.1 basis point.

The Greek ASE Index of shares gained 9.8 percent, the biggest increase since Feb. 3, having been closed on Monday in Athens for a public holiday.

Italy’s 10-year bond yield fell four basis points to 1.46 percent, Spain’s declined three basis points to 1.39 percent, while Portugal’s decreased as much as three basis points to a record 2.102 percent. The rate on equivalent Irish debt touched 1.015 percent, the lowest on record.

The average yield on securities in the Bloomberg Eurozone Sovereign Bond Index dropped to a record-low 0.66 percent on Monday.

Germany’s 10-year bunds fell for the first time in four days. The yield increased one basis point to 0.37 percent.

[Bloomberg]