As Greek Prime Minister Alexis Tsipras steps up efforts to clinch a deal that would unlock financial aid, markets have already given their verdict.
The ASE Index of stocks jumped the most since September 2012 from a two-year low on April 21. It ended up 6.1 percent in April, the biggest rally in western Europe. Bonds returned 13 percent, while securities in the rest of the region fell.
Investors put money into Greek assets in April, betting the rally may have more to go if a default is averted. The nation and its creditors hope to reach a preliminary agreement by Sunday, ahead of a scheduled meeting of euro-area finance ministers on May 11, according to three people familiar with the matter.
“The fact that the political news looks better is why you’ve had an improvement in stocks last month and a retracement in bonds,” said Michael Michaelides, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. “We think there will be a deal, and the short-term news has been good.”
Tsipras told his cabinet on Thursday that he’s confident a deal is close, even as his government sent conflicting signals on its willingness to agree on reforms required under the 240 billion-euro ($270 billion) bailout. Faced with debt payments of about 1 billion euros to the International Monetary Fund on May 6 and May 12, Greece hopes there will be enough progress in the talks by next week to allow the European Central Bank to restore liquidity access for the country’s cash-strapped banks.
Greek lenders, which reached a record low on April 21, climbed 16 percent last month, with shares of Eurobank Ergasias SA surging 29 percent. The price of the nation’s 2017 note rose to a seven-week high on Thursday, and the yield fell 317 basis points, or 3.17 percentage points, to 19.45 percent in April. Rates on 10-year bonds dropped 117 basis points to 10.47 percent.
In a sign that the government may be ready to ease its stance against certain reforms, it plans to invite investors to buy a stake in the country’s main port of Piraeus on May 6, the same day the ECB may discuss collateral it accepts from Greek banks in return for emergency funding. Greece will proceed this year with the sale or lease of stakes in several strategic assets, including Piraeus Port Authority SA and 14 regional airports, according to Greek officials with direct knowledge of the matter.
An agreement with the creditors could still stumble at opposition within Tsipras’s government. Finance Minister Yanis Varoufakis said on Thursday Greece wouldn’t discuss pension cuts or a sales-tax increase, although he expressed hope that the nation would be able to regain market access after June.
Even with Greek stocks having recovered almost all their losses for the year, the ASE still has a lot of catch up to do. The index is down 40 percent from its high last year. The nation’s equity market is now worth $43 billion, down from $273 billion at its peak in 2007.
And trading in Greek government bonds is scant, with no turnover through the central bank’s electronic secondary securities market on Thursday, according to ANA. Data from the Bank of Greece showed trading volume across all maturities totaled 2 million euros in April, the least since February 2012. Volume plunged to zero in October 2011 after peaking at 136 billion euros in September 2004.
Still, Greek equities closed at their highest level in almost two months, and investors have added $223 million to an exchange-traded fund tracking the equities this year. The short interest on the Global X FTSE Greece 20 ETF fell to its lowest level since 2013 in April, Markit data show.
“We have seen a deep value rotation globally in April, with a lot of bombed-out stuff being picked up,” said Michael Ingram, a market strategist at BGC Brokers LP in London. “Greece was part of that. Of course, the question has to be asked: are they cheap for good reason. Greece is in a trilemma: Syriza wants to stay in government, stay in the euro and deliver real economic relief from the people. The prospects of achieving all three look close to zero.”