Greek Bonds Post Weekly Gain as Minister Retreats on Debt Demand

Greek government bonds rose, with three-year yields falling the most in three weeks, after Finance Minister Yanis Varoufakis backed away from a demand for a debt writedown.

Negotiations between euro-area officials and Greece’s newly-elected government remained tense, and gains made on Tuesday that were the biggest since 2012 were pared in the remainder of the week. Greece’s credit rating was cut by Standard & Poor’s after markets closed on Friday and an emergency meeting of euro-area finance chiefs is scheduled for Feb. 11 in Brussels.

“Nobody knows where this is going,” said Peter Schaffrik, London-based head of European rates strategy at Royal Bank of Canada. “We’ve had a lot of news but we haven’t really gone anywhere.” Compared with the end of last week, “the market is slightly less nervous, particularly because the issue of a unilateral default in Greece is off the table.”

Greek three-year note yields fell 115 basis points, or 1.15 percentage points, to 18 percent at the 5 p.m. London close on Friday. The 3.375 percent security due July 2017 climbed 1.835, or 18.35 euros per 1,000-euro ($1,132) face amount, to 73.02. The 10-year rate dropped 1.07 percentage points since Jan. 30 to 10.11 percent.

Greek bonds were whipsawed through the week as Varoufakis and Prime Minister Alexis Tsipras toured Europe to try to cut a new deal on repaying a rescue package agreed to in 2012. Markets surged on Tuesday, following a meeting between the finance minister and bankers at which he outlined plans to swap some debt for new securities, rather than reducing the amount owed.

Gains Eroded

Tuesday’s gains were then eroded as demand at a sale of Treasury bills slumped, the European Central Bank restricted access to funding lines for the nation’s financial institutions and the chair of the euro area’s group of finance ministers said a request by Greece for short-term financing wouldn’t be granted. The nation’s current bailout program ends on Feb. 28 and Varoufakis has said his government won’t accept any more cash under the terms of the existing bailout.

German 10-year bunds declined for the first week since early December, with the 10-year yield climbing seven basis points to 0.38 percent.

Portugal plans to auction as much as 1.25 billion euros of bonds due in 2025 on Feb. 11. The country sold 3.5 billion euros of 10-year securities via banks on Jan. 13. It also sold 30-year bonds the same day, the longest debt maturity offered since the country exited its international aid program.

Greek bonds returned the least of all euro-area sovereign markets this year through Thursday, according to Bloomberg World Bond Indexes. They earned 0.2 percent, while Germany’s gained 2.1 percent.

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