LONDON: Greek shares surged and bond yields tumbled on Tuesday as the new government in Athens appeared to soften its stance on a debt writedown with proposals for a new debt swap.
Finance Minister Yanis Varoufakis, who met investors in London on Monday, proposed ending a standoff with creditors by swapping the debt for growth-linked bonds, and told private investors they would not face losses.
While Varoufakis later said he had been misinterpreted, he was widely reported in Greek media to be backing down from the anti-austerity government's plan to press for a debt haircut.
"Up to this point, there clearly has been a very robust demand from Greece that there will be an official sector haircut. Weakening those demands is an important step towards finding a compromise," said Mark Dowding, a senior portfolio manager at BlueBay.
Yields on 10-year bonds fell more than 160 bps to 9.77 percent, on track for their biggest one-day fall since 2012, while yields on equivalent debt in Portugal, Italy and Spain fell between 5 and 10 basis points.
Athens's benchmark stock index gained more than 11 percent, buoying other European share markets.
Even news that three of Greece's four major banks had started to tap emergency funding from the central bank did not visibly dampen investor spirits, with the country's bank index up around 18 percent.
"When they (the Greek government) came into office, they realised the banks are not in a particularly good situation, the public finances are not in a strong situation - they cannot go on further without support from the ECB or taxpayers," said Jakob Christensen, senior economist at distressed debt brokerage Exotix.
There were also signs of possible reciprocal concessions from Greece's international lenders.
German daily Handelsblatt reported on Tuesday that the European Central Bank and the IMF may leave the "troika" of lenders that governs Greece's bailout.
Berlin is seeking to arrange a time for Varoufakis to meet German Finance Minister Wolfgang Schaeuble, as he continues his tour of Europe.
"The level of noise is actually coming down a bit and a bit more compromise being shown on both sides," said Michael Krautzberger, head of European fixed income at BlackRock.
Greece's short-dated yields, which shot up during the latest political upheaval, came crashing back down on Tuesday. Three-year bond yields fell over 300 bps to 16.77 percent, while five-year yields were down 240 bps at 13.16 percent.
But not all investors are confident that the conciliatory tone coming from Athens will be enough to convince the broader institutional investor community to restore Greek sovereign debt to their portfolios.
"We want to see a situation where the Greeks strongly affirm their motivation and commitment to remaining in the euro zone. Then we know the European Central Bank will support them," said Olivier de Larouziere, head of rates at Natixis Global Asset Management.
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