LONDON: German Bund yields were on track for their biggest weekly rise of 2015 as fears of an imminent Greek default eased, though strategists still saw ECB buying as a powerful driver in the opposite direction.
Greece offered concessions on Friday on some key reforms demanded by international lenders in exchange for new funding, with Athens' coffers emptying rapidly. German Chancellor Angela Merkel said on Thursday everything must be done to prevent Greece running out of cash.
Policymakers from the two countries spoke of "progress" and "constructive" talks, but euro zone finance ministers meeting in Riga on Friday were not expected to make a breakthrough on a new deal. Athens looks likely to be able to scrape together enough cash to meet its payment obligations into June by tapping into public reserves and has ordered various state entities to park idle cash with the central bank. This has encouraged investors to sell top-rated Bunds this week and buy higher-yielding debt from other euro economies, traders said, but mixed economic data has provided some restraint.
Weak German private sector growth data weighed down the euro zone average on Thursday, but on Friday data showed business morale there at its highest in nearly a year. German Bund yields were a fraction lower on the day at 0.16 percent. In the week they have risen 8 bps, the biggest move since December 2014.
"This week's rise has been driven by developments in Greece," said Christian Lenk, rate strategist at DZ Bank. "There is no major danger lying ahead of us in the next few weeks, but Bund yields have returned (lower) due to the most important fundamental factor in the market - the ECB programme."
Having hit a record low of 0.05 percent just last week, some analysts still expect Bund yields to fall closer to zero or even below as the ECB's trillion euro bond-buying programme ensures steady demand.
While German 10-year yields headed north this week, Italian and Spanish equivalents have fallen by around 6 bps. On Friday, both were up a tad at 1.42 and 1.39 percent, respectively.
Greek 10-year yields were on track to fall for a third consecutive day - down around 4 bps at 12.32 percent - as investors breathed a sigh of relief that Athens' cash crunch would be delayed at least for a few more weeks.
"We think that Athens may be able to survive a little longer," said Lucy O'Carroll, chief economist at Aberdeen Asset Management.
Comments
Comments are closed for this article.