LONDON: Greek bond yields edged up on Monday as euro zone finance ministers met in Brussels to discuss a cash-for-reforms deal for Athens, which faces the first of a series of large debt repayments this week.
Greece's government remains hopeful that the Eurogroup meeting will note progress on talks, although its biggest creditor nation, Germany - facing a eurosceptic backlash from within - is in no mood to compromise on pension and labour market reforms.
A senior euro zone official told Reuters that Athens has enough money left to easily pay a crucial 750 million euro debt instalment to the IMF on Tuesday, the first of big bills due in the coming months.
Unless Greece can reach an agreement to unlock the 7.2 billion euros of bailout funds, it may struggle to honour another 1.5 billion euro payment to the IMF in June and 3 billion owed to the ECB in July, as well as welfare payments.
Greece wants euro zone finance ministers to acknowledge there is progress in its talks with international lenders and is not looking into any "plan B", the government's spokesman said on Monday before the Eurogroup meeting.
Finance Minister Yanis Varoufakis acknowledged a deal to ease Greece's cash crunch was not likely at the meeting despite progress in talks with lenders on some issues.
A failure to pay may not automatically see ratings agencies put Greece in default, but it could prompt downgrades that would limit ECB funding to Greek banks and stretch the patience of its creditors.
"The crucial information that nobody seems to know is - how much money do they have left?" RBC's head of European rates strategy, Peter Schaffrik, said.
Hints of some progress towards a debt deal are crucial for the ECB to give Greece a green light to sell more short-term debt to keep its banks afloat. ECB chief Mario Draghi will speak at the IMF in Washington on Thursday.
In what could be another blow for Athens, analysts are expecting Fitch to downgrade its B credit rating on Friday.
Two-year Greek yields edged up 35 basis points (bps) to 20.86 percent on Monday, while 10-year yields were up a fraction at 10.79 percent.
Greek stocks were down 2 percent, underperforming other European bourses.
Other strategists say even if Greece defaults on either the IMF or the ECB, it will not necessarily spell the end of its membership of the currency union.
"I'm not convinced it will be enough for the ECB to pull the rug from under Greece. If Greece is to go, it will need to be a political decision," said ING strategist Padhraic Garvey.
Investor nervousness around the Greek situation also weighed on other euro zone bonds, extending a broad sell-off first triggered two weeks ago by improving inflation expectations and uneasiness with record low yields.
Italian and Spanish 10-year yields rose 5 bps to 1.73 percent, while benchmark German yields were up 4 bps at 0.58 percent.
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