LONDON: Greek government bond yields rose sharply on Friday, giving up early falls, as euphoria surrounding the passing of a key reform bill gave way to concerns about renewed political instability.
Greece's parliament approved the legislation on Thursday to secure further aid from its international lenders, but Prime Minister Alexis Tsipras expelled two dissenting coalition lawmakers after the vote.
The government can now count on only 153 votes in the 300-seat chamber.
Greek two-year yields rose 60 basis points to 6.64 percent , erasing falls seen earlier in the week.
"While we have had an agreement on the deal some investors are thinking that there may be some instability on the political side in Greece now," Natixis strategist Cyril Regnat said.
Ten-year Greek bond yields rose 10 bps to 7.18 percent, though they are more than 12 percentage points below levels seen in July when concerns about a Greek exit from the euro zone were at a peak.
They fell to their lowest in more than a year earlier this week following news that Athens had reached an agreement with its lenders on financial reforms, removing a major obstacle holding up fresh bailout funds to the cash-strapped country.
"The big battle will be the first review (of the aid programme) which is starting later this year, but in all likelihood will be pushed way into next year," RBS rates strategist Michael Michaelides said.
"It is too early to tell whether the government can survive the first review, but my feeling is that it is going to be tough because there will be big pressure from the European side to get all the agreed reforms through."
Elsewhere, German two-year bond yields were pinned near record lows following a strong hint from European Central Bank President Mario Draghi that further monetary stimulus is on its way in December.
Speaking in Frankfurt, Draghi said the ECB is ready to act quickly to boost anaemic inflation in the euro zone, highlighting changes to its asset purchase programme and deposit rate as possible tools.
"It's not the first time that Draghi has given such comments; other ECB governing council members have given similar comments and the latest ECB minutes also point in this direction," said KBC rate strategist Mathias van der Jeugt.
"Since the previous ECB and Fed meetings, we've had a clear policy divergence trade across markets with a significant widening between rates in the US and Europe."
The yield on two-year German bonds, the most sensitive to interest rate speculation, briefly fell to -0.38 percent, matching a record low hit earlier this week.
Falling euro zone bond yields come at a time when Treasury yields across the Atlantic have risen in anticipation of the Federal Reserve hiking US interest rates in December.
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