German yields fall as Greek eyes debt sale to avert funding crunch

LONDON: German Bund yields pushed lower on Wednesday as Greece prepared to sell treasury bills to refinance maturing debt, a day before it has to repay an International Monetary Fund loan.

Selling pressure on Greek assets eased on Tuesday after Athens said it would repay the 450 million-euro loan tranche due on Thursday, but the country is fast running out of cash.

Finance Minister Yanis Varoufakis has said an agreement on a package of reforms needed to free bailout money from its euro zone and IMF lenders has to be reached this week.

Analysts see the sale of 875 million euros of six-month T-bills later in the day as a key test of whether the government can find other sources to plug any funding gap if foreign investors refuse to roll over their T-bill exposure.

Greek bond yields edged up in early trade while benchmark German 10-year yields were 2 basis points lower at 0.17 percent.

"Today's Greek T-bills auction will probably ... get a wide attention as the cash crunch intensifies with the 450 million euro redemption payment to the IMF looming tomorrow," Commerzbank strategists said in a note.

Greece has its hopes set on another meeting of euro zone deputy finance ministers on April 8-9, although it is unlikely that a deal could be reached by then. The next meeting of euro zone finance ministers will take place on April 24.

"I think Greece will repay the loan to the IMF. From that standpoint, I don't think there will be a case for default in the very near-term," BNP Paribas strategist Patrick Jacq said. "The weeks ahead are crucial."

Traders were also focusing on an auction later in the day of two-year German bonds that many expect to see solid demand, even though yields have fallen deeper into negative territory.

The concerns about Greece, the European Central Bank's bond buying as well as sparse new bond supply, especially from Germany, was also keeping yields on top-rated bonds subdued.

Italian and Spanish 10-year yields were a touch up at 1.20 percent and 1.19 percent, respectively, though the moves were modest, thanks to insulation from the ECB's bond-buying scheme.