Greek bond yields drop to year low

Greek bond yields drop to year low

Greek two-year government bond yields fell to their lowest level this year on Monday as investors welcomed Athens’s approval of a series of reforms needed to unlock bailout cash.

Parliamentary approval of the reform bill late on Friday keeps Greece on track to secure the next 2-billion-euro installment of its aid program as well as funds to recapitalize its ailing banks and negotiations on debt relief.

It was also seen as a demonstration of strength by Prime Minister Alexis Tsipras, who held on to power in an election last month despite a split within his party.

“Investors are simply digesting the vote… on the so-called preconditions for the third bailout package,” said Christian Lenk, rate strategist at DZ Bank.

“There is some relief that Tsipras finds enough support among his ranks to pass these reforms.”

Mission chiefs of Greece’s international lenders will visit on Tuesday to be informed about the pace of reforms, a Greek government official said on Monday.

The first review of Greece’s 86-billion-euro bailout is due to start later this month.

Greek debt was the best performing in the eurozone on Monday, with two-year yields down more than 80 basis points at a 2015 low of 8.23 percent, according to Tradeweb.

The gap between Greek and German two-year yields was also at its narrowest this year.

Short-dated yields remain higher than those on longer-term bonds, however, in a sign that investors still fear the country could be heading toward default.

Ten-year yields were down 27 bps to 7.63 percent.

Owen Callan, a senior analyst at Cantor Fitzgerald, expects this distortion to fade once Athens passes the review, which he said should in turn prompt the European Central Bank to start buying Greek bonds under its quantitative easing scheme.


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