Greece Bonds Rally After Creditors Agree to Resume Talks

  • Two-year yield set for biggest drop in more than seven months
  • Investors say July deadline for debt redemption may be met

Greek bonds rallied on optimism that talks to rescue the beleaguered nation may conclude sooner than investors were expecting.

The yield on the nation’s two-year notes was headed for the biggest drop since June after creditors agreed on Monday to resume talks in Athens over steps needed to continue a bailout of the nation, spurring speculation that the government would be able to meet its deadline for debt redemption by July. The government vowed to legislate reforms that will be implemented starting 2019 under the prerequisite that they are fiscally neutral, a Greek official said separately, speaking on condition of anonymity.

“Yesterday’s positive Eurogroup meeting broke the stalemate and increased the odds that the second review will conclude earlier than what the market had priced in,” said Thanassis Drogosis, the Athens-based head of institutional equities at Pantelakis Securities SA. “Still, there are some crucial questions such as time lines, the role of the International Monetary Fund, remain unanswered.”

The yield on the nation’s two-year bonds fell 136 basis points to 8.18 percent as of 9:29 a.m. in London, headed for the biggest drop since June 29. The rate on 10-year securities dropped 33 basis points to 7.21 percent.

Tuesday’s rally notwithstanding, some analysts sounded a note of caution.

“We would caution against too much optimism, as we agree with the IMF’s debt-sustainability analysis, which concluded that Greece’s debt is unsustainable,” said Peter Chatwell, the London-based head of rates strategy at Mizuho. “We expect it will be very difficult politically to arrive at solution which keeps all parties happy.”