Greek bond yields fell on Monday as hopes grew of a speedy wrap-up to talks on a new 86 billion euro bailout designed to keep the country from financial collapse and in the euro.
In a week where top-tier economic data and new debt sales from euro zone countries is sparse, focus was back on Greece, which according to an official hopes to conclude negotiations with international creditors by early Tuesday at the latest.
This could see the release of cash to enable Athens to repay 3.5 billion euros to the European Central Bank due on Aug. 20.
Greek two-year yields were down 43 basis points at 20.69 percent with 10-year yields 12 bps lower at 11.77 percent. The 10-year yields have tumbled off highs around 19 percent hit in early July when a standoff in talks between Greece and its international creditors took the country to the brink of financial ruin.
The optimism around Greece had little impact on other southern European bond markets, with Italian and Spanish 10-year yields edging 1.5 basis points up to 1.85 percent and 1.999 percent on some profit-taking after the market's sharp rally on Friday on falling oil prices.
"There's lots of positive noises coming from the Greek talks but generally most of the good news is now priced into the market," said Rabobank strategist Lyn Graham-Taylor.
Negotiations on the bailout began on July 20 after Athens agreed to European institutions and the International Monetary Fund's austerity demands. A senior Greek finance official told Reuters the aim was for euro zone finance ministers to review the accord on Friday, Aug. 14.
German 10-year yields were a touch higher at 0.66 percent, as were yields on other top-rated euro zone bonds.
Falling oil prices have revived concerns about subdued inflation in the euro zone that could see the European Central Bank extend its trillion euro asset purchase program due to end in September 2016.
That overshadowed a steady July US labor market report on Friday that suggested the Federal Reserve could hike interest rates as soon as next month, driving all euro zone bond yields sharply lower.