Bund yields dip as market cautious before key meetings on Greece

German Bund yields dipped on Wednesday as the market turned cautious before key negotiations on a cash-for-reform deal with Greece, even as an agreement has looked increasingly likely in recent days.

Greek Prime Minister Alexis Tsipras is due to meet European Central Bank President Mario Draghi, the head of the International Monetary Fund Christine Lagarde and European Commission President Jean-Claude Juncker on Wednesday.

A meeting of eurozone finance ministers at 1700 GMT will then try to end the logjam in debt negotiations.

The latest reform proposals by Greece have been welcomed by European policymakers, but a deal is not yet done. Greek economy minister George Stathakis said “two or three” items were yet to be settled.

Objections to the deal from some in Tsipras’ leftist SYRIZA party also warranted caution, analysts said.

German 10-year Bund yields dipped 1 basis point to 0.86 percent. They have risen about 10 basis points since last week as hopes for a deal have risen after Greece’s latest proposal to creditors.

“We have a very important day ahead and it may be a volatile day,” said KBC strategist Piet Lammens. “It’s clear that it’s not yet a done deal. It will be a Greece-watching day, looking at rumors and comments out of these meetings.”

Top-rated Bunds are usually in demand when investors are risk averse. Yields on lower-rated Italian, Spanish and Portuguese bonds rose slightly, reflecting a more cautious tone in the market after a rally in the past two days.

Greece is fast running out of money. It is due to pay 1.6 billion euros in a loan tranche to the IMF at the end of the month and officials said Athens would be unable to pay without financial aid.

The mood remained optimistic. At the Euromoney Global Borrowers and Investors Forum in London on Tuesday, about 70 financial market professionals attending a panel discussion were asked to raise their hand if they thought the market was too complacent on Greece. Only one hand was up.

Officials from eurozone government debt agencies and state treasuries have also said market prices reflected the risks surrounding Greece.

“We expect a deal at the Eurogroup Wednesday evening, even if the IMF and some Greeks demur,” Societe Generale strategists said in a note. [Reuters]