Eshe Nelson
2:01 AM PST
February 10, 2015
2:01 AM PST
February 10, 2015
(Bloomberg) -- Greek government bonds advanced for the first time in five days on speculation Greece and its international creditors are moving toward an agreement that will help ensure the nation isn’t left short of funds.
The advance pared a slump on Monday that pushed three-year yields up by the most since 2012. Greek stocks rose for the first time in four days. The nation’s Finance Minister Yanis Varoufakis is due to meet with his 18 euro-area counterparts on Wednesday to propose a short-term funding program.
Varoufakis told lawmakers in Athens on Monday that Greece will implement about 70 percent of reforms already included in the current bailout agreement and pursue more overhauls with the Organization for Economic Co-operation and Development. He is also seeking a bridge agreement, which will allow Greece to revise current bailout conditions and negotiate a new program.
“We think there is room for optimism given these proposals,” said Richard McGuire, head of European rates strategy at Rabobank International in London. “They indicate a willingness to compromise. We’re optimistic a resolution of some form will be forthcoming and possibly by the end of this month before the current bailout expires, which could see a marked retracement of the selloff we’ve seen since the elections.”
Three-Year Notes
Greece’s three-year note yield dropped 172 basis points, or 1.72 percentage points, to 19.36 percent at 12:42 p.m. London time. The rate climbed 308 basis points on Monday. The 3.375 percent note due July 2017 rose 2.395, or 23.95 euros per 1,000-euro ($1,129) face amount, to 71.115.
While the yield on Greek three-year notes retreated from highs set since the 2012 debt restructuring, it’s still up from 10.08 percent before Jan. 25 elections swept the Syriza party to power with a plan to renege on austerity measures required by the troika of the International Monetary Fund, European Central Bank and European Commission in return for financial aid.
Greece’s ASE Index rose 4.8 percent on Tuesday, for the best performance among 18 western European markets tracked by Bloomberg. Eurobank Ergasias SA and Piraeus Bank SA gained more than 12 percent each.
Austerity Debate
German political leaders have said any extension of assistance to Greece must come with strings attached. Chancellor Angela Merkel said in Washington on Monday that the existing aid programs would be the basis for negotiations with Greece, and that she would wait to hear what its government has to say.
“Even on the German side you can see the possible contours of a deal,” said Nick Kounis, head of macro and financial markets research at ABN Amro Bank NV in Amsterdam. “For me, what’s very important is the Greek Finance Ministry saying they are willing to embark on a new program of reforms. You could see a liquidity package on the basis there is enough space and commitment to reform. That would give them a few months to reach a bigger and longer deal.”
Two other troika officials said Greece may be given more time to present its complete proposals for a permanent arrangement if Prime Minister Alexis Tsipras accepts he needs a new program, which will include monitoring, and commits not to reverse the most important overhauls of the bailout agreement.
To avoid a funding crunch when the current bailout program ends on Feb. 28, Varoufakis is set to present a proposal at the Eurogroup meeting in Brussels that will ask for an 8 billion-euro increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named because the negotiations are confidential. He will also seek the disbursement of 1.9 billion euros of profits that euro-area central banks made on their Greek bonds holdings.
Italian Debt
Italian bonds rose for the first time in three days and Spanish bonds erased earlier losses after Market News reported the European Commission will present a compromise proposal to the Eurogroup on Wednesday.
Greece should ask a six-month period during which it will discuss and agree with its lenders on all pending issues as well as the post bailout plan, under this proposal says, according to Market News, which cited an unidentified Commission official.
Italy’s 10-year yield fell five basis points to 1.62 percent while the rate on similar-maturity Spanish securities was at 1.56 percent.
Greece’s securities are the worst-performing government bonds this year, according to Bloomberg World Bond Indexes. They lost 7.9 percent through Monday. Germany’s debt, the euro area’s benchmark, earned 2.1 percent, the same as Italy’s, while Spanish sovereign securities rose 0.9 percent.
To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White
