Greek Bonds Rise for First Time in 5 Days on Hint of Compromise

by Eshe Nelson

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. Photographer: Andrew Harrer/Bloomberg

(Bloomberg) -- Greek government bonds rose 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. With Greece’s Finance Minister Yanis Varoufakis due to meet with his 18 euro-area counterparts on Wednesday to propose a short-term funding program, an official representing the creditors said the Greek government had shifted to a more cooperative stance.
“Both sides have clearly given themselves room for maneuver to strike a deal ahead of Wednesday’s Eurogroup meeting,” Nick Kounis, head of macro and financial markets research at ABN Amro Bank NV in Amsterdam, wrote in a client note. “Measures to ease Greece’s debt burden could
be taken in steps conditional on the country delivering on its reform commitments.”

Greece’s three-year note yield dropped 124 basis points, or 1.24 percentage points, to 19.84 percent at 9:57 a.m. London time. The rate climbed 308 basis points on Monday. The 3.375 percent note due July 2017 rose 1.725, or 17.25 euros per 1,000-euro ($1,129) face amount, to 70.445.
While the yield on Greek three-year notes fell below 20 percent today, 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.

Austerity Debate

German political leaders have said they will not extend more assistance to Greece without 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.
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.
“We’re optimistic a resolution of some form will be forthcoming and possibly by the end of this month before the current bailout expires,” said Richard McGuire, head of European rates strategy at Rabobank International in London. That may “see a marked retracement of selloff we’ve seen since the elections,” he said.