All it took was a glimmer of optimism in Greece’s debt negotiations to fuel a rally in Spanish bonds that cut their yield premium over German bunds by the most in almost a year.
Greek bonds also jumped, pushing the three- and 10-year yields down from the highest levels since 2012, while a slump in German bunds sent yields up by the most in three months.
Speaking to reporters in Athens late on Tuesday, Greece’s Finance Minister Yanis Varoufakis said the “convergence is absolutely clear.” That was sufficient to rekindle demand for higher-yielding euro-area bonds after a selloff last week.
“Just the absence of a further escalation in the situation is enough to trigger a consolidation” after recent declines, said Michael Leister, a senior rates strategist at Commerzbank AG in Frankfurt.
Spanish 10-year yields fell eight basis points, or 0.08 percentage point, to 1.37 percent at the 5 p.m. London close. The yield rose to 1.50 percent on April 20, the highest in two months. The 1.6 percent bond due in April 2025 rose 0.74, or 7.40 euros per 1,000-euro ($1,072) face amount, to 102.125.
That narrowed the extra yield, or spread, that investors get for holding the securities instead of benchmark German bunds by 14 basis points to 121 basis points, the steepest drop since May last year.
Greece’s three-year yield fell 196 basis points to 27.62 percent, after earlier climbing to 30.05 percent, the most since the nation’s debt was restructured in March 2012. The 10-year yield dropped 79 basis points to 12.85 percent.
Euro-area finance ministers will meet in Riga, Latvia, on April 24 in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money.
Both sides “have invested a huge amount in achieving an agreement, and neither they nor we will let the opportunity slip to arrive at an agreement that’s clearly to the benefit of everyone,” Varoufakis said.
On Monday, Prime Minister Alexis Tsipras’s administration ordered local governments to shift funds to the central bank, revealing how tight the nation’s margin for maneuver is.
The yield on German 10-year bonds, the euro region’s benchmark sovereign securities, rose six basis points to 0.17 percent, the biggest increase since Jan. 21.