Greek bond yields fall sharply after Athens softens debt writedown call

Greek bond yields fell sharply on Tuesday as the new government in Athens appeared to soften its stance on a debt writedown with proposals for a new debt swap.

Meeting investors in London on Monday, Finance Minister Yanis Varoufakis proposed ending a standoff with creditors by swapping the debt for growth-linked bonds, and reassured private investors that they would not face losses.

While Varoufakis later issued a statement saying that his comments had been misinterpreted, he was widely reported in Greek media to be backing down from the anti-austerity government’s plan to reduce their debt.

Yields on 10-year bonds opened 151 bps lower at 9.88 percent, on track for their biggest fall since Greek debt was restructured in 2012, while yields on other peripheral debt in Portugal, Italy and Spain fell between 5-10 basis points.

“The latest proposals for a debt restructuring in Greece seem to have backed away from a hard haircut,” RBC’s head of European rates Peter Schaffrik said.

“The more concessionary tone… should support spread products and generally speaking risky assets in the euro area.”

There were also signs on Tuesday of possible reciprocal concessions from Greece’s international lenders.

Athens has said it and will not cooperate with inspectors from the “troika” of lenders that governs Greece’s bailout, and instead wants to negotiate directly with European authorities and the International Monetary Fund over a new accord.

German daily Handelsblatt reported on Tuesday that the European Central Bank and the IMF may leave the “troika.”

Greece’s short-dated yields, which have shot up the most during the latest political upheaval, came crashing back down on Tuesday. Three-year bond yields fell 320 bps to 16.64 percent, while five-year yields were down 208 bps at 13.46 percent.

German 10-year yields fell below Japan’s for the first time on Tuesday, Tradeweb data showed, as the European Central Bank stands ready to launch its new money-printing program.

The eurozone benchmark nudged up 2 bps to 0.33 percent, but remained below Japan’s which had risen 7 basis points to a six-week high of 0.36 percent during a tumultuous Asian trading session.

In a bid to fight off falling consumer prices and nurture tepid growth, the ECB will start buying assets — including government bonds in the 2- to 30-year maturity range — from March.

Taking advantage of the demand this scheme has created for long-dated debt, Ireland is set to price a new 30-year bond on Tuesday, following the lead of Portugal and Italy which have already launched similar deals this year.

[Reuters]