By John Geddie
Greek two-year government bond yields fell to their lowest level this year on Monday as investors welcomed Athens’ approval of a series of reforms needed to unlock bailout cash.
Parliamentary approval of the reform bill late on Friday keeps Greece on track to secure the next 3 billion euro instalment of its aid programme as well as funds to recapitalise its ailing banks, and negotiations on debt relief.
It was also seen as a demonstration of strength by Prime Minister Alexis Tsipras, who held on to power in an election last month despite a split within his party.
“Investors are simply digesting the vote … on the so-called preconditions for the third bailout package,” said Christian Lenk, rate strategist at DZ Bank.
“There is some relief that Tsipras finds enough support among his ranks to pass these reforms.”
Mission chiefs of Greece’s international lenders will visit on Oct 20 to be informed on the pace of reforms, a Greek government official said on Monday. The first review of Greece’s 86-billion-euro bailout is due to start later this month.
Greek debt was the best performing in the euro zone on Monday, with two-year yields down more than 80 basis points at a 2015 low of 8.24 per cent, according to Tradeweb.
The gap between Greek and German two-year yields was also at its narrowest this year.
Short-dated yields remain higher than those on longer-term bonds, however, in a sign that investors still fear the country could be heading towards default. Ten-year yields were down 22 bps to 7.68 per cent.
There was a more muted reaction in stock markets. Athens’ benchmark ATG index was up 0.1 per cent, lagging a 0.4 percent rise on the pan-European FTSEurofirst.
Some Greek bank shares were up as much as 5 per cent .
Other euro zone bond yields were flat to a touch higher after Chinese growth data beat expectations and a top ECB policymaker struck a note of caution about an extension to Europe’s quantitative easing scheme.
Chinese output in the third quarter was up 6.9 per cent from the same quarter last year, beating forecasts for a 6.8 per cent rise. But it was the first time growth has dipped below 7 per cent since the financial crisis.
Weakening Chinese demand is exacerbating a decline in commodity prices and global consumer price growth. In Europe, this has led to another bout of deflation.
But ahead of the ECB’s policy meeting on Wednesday, governing council member Ewald Nowotny told a Polish newspaper it was too early to talk of an extension of its trillion euro asset purchase scheme. This appeared to contrast with comments last week in which he said bond-buying might be broadened.
Benchmark German bond yields rose 1 bps to 0.55 per cent.