LONDON: Greek two-year bond yields jumped about 2 percentage points to a one-month high on Monday as a leaked transcript detailing mooted IMF bailout negotiation tactics renewed worries about the country's finances.
WikiLeaks published on Saturday what it said was the transcript of a March 19 conference call of three senior IMF officials, discussing tactics to apply pressure on Greece, Germany and the EU to reach a deal in April.
They were quoted as discussing a threat that the fund might not participate in Greece's third bailout programme as a way to force EU creditors, especially Germany, to reach a deal on debt relief before Britain's June referendum on whether to stay in the European Union.
The Fund's Managing Director Christine Lagarde denied on Sunday that IMF staff would push Greece closer to default as a negotiating tactic on a new Greek bailout deal, which she said was "still a good distance away".
Lagarde said in a letter to Greece's prime minister that the debt talks should continue, while Prime Minister Alexis Tsipras' office said the negotiations must be concluded immediately, "without unrealistic demands".
Greece's two-year yields rose to a one-month high of 11.15 percent, while 10-year yields were up 28 basis points at just over 9 percent.
An inverted yield curve, when short-term rates are higher than longer-term ones, usually suggests heightened default fears.
"Markets are nervous that it could either delay progress on the subsequent reviews or lead to something more significant," said Stuart Culverhouse, chief economist at distressed debt broker Exotix.
"I don't think there is much of a risk of default in the very near term but clearly if it absents official financing then it becomes more of a concern."
Athens' main stock index shed 1.2 percent on Monday, led by drop in banking shares of more than 5 percent. DIFFERING INTERESTS EU/IMF
lenders are due to resume talks on Greece's fiscal and reform progress in Athens on Monday, aiming to conclude a bailout review that will unlock further loans and pave the way for negotiations on long-desired debt restructuring.
The review has been adjourned twice since January due to a rift among the lenders over the estimated size of Greece's fiscal gap by 2018, as well as disagreements with Athens on pension reforms and the management of bad loans.
"The impression is confirmed that the differing interests at stake have prevented an agreement to date," DZ Bank strategist Daniel Lenz said. "Investors are therefore reacting nervously."
Elsewhere, top-rated German 10-year Bund yields fell closer to zero on Monday, helped by ramped-up bond purchases by the European Central Bank.
Much of the additional buying is expected to be targeted at government bonds in the short term as plans to include corporate bonds in the now 80 billion euros a month scheme take effect later this quarter.
Cash flows are also benefiting euro zone bonds. Citi strategists expect debt issuance of 73 billion euros across the region, compared with 32 billion euros worth of coupon payments and 140 billion euros in debt redemptions.
Bund yields fell 2 basis points to 0.12 percent, the lowest since March 1.
Their record low of 0.05 percent was hit about a year ago and was followed by one of the sharpest sell-offs in history.
There is no consensus that Bund yields could break new lows and turn negative, but such bets are popping out.
Some analysts are wary that a new sell-off could occur as Bunds get expensive and liquidity conditions remain poor.
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