LONDON: Greek bond yields hit six-month lows on Wednesday, with short-term yields dipping below those on long-dated debt for the first time since March after euro zone finance ministers unlocked new funds for Athens and gave it a firm offer of debt relief.
With fears of a Greek default easing, yields on short-dated Greek government bonds tumbled more than 140 basis points to around 6.75 percent, their lowest in six months.
Greece's 10-year yield fell more than 30 bps to 7.07 percent, also a six-month low. Reuters data showed it dipped briefly below 7 percent, the level below which governments find it easier to fund themselves in markets.
After talks that lasted until early Wednesday, Eurogroup ministers agreed to release 10.3 billion euros in new funds for Greece in recognition of fiscal reforms pushed through by Prime Minister Alexis Tsipras's leftist-led coalition.
But a bigger step was a deal by which the euro zone agreed to offer Athens debt relief in 2018, if necessary, to meet agreed criteria on its payments burden.
That secured an agreement from the International Monetary Fund to again join the euro zone in funding the bailout of Greece.
"The good news is that the amount that the creditors are likely to give Greece before July means that Greece will be able to pay bonds that mature in July and there will be no default," said BNP Paribas rate strategist Patrick Jacq.
In a sign of the easing default fears, two-year bond yields fell below 10-year yields for the first time since March, while the Greek/German 10-year yield spread was its tightest level in about six months at about 713 bps.
Top-rated German Bund yields were just 1 bps lower at 0.17 percent.
Greek stocks rallied almost 1 percent, while peripheral bond yields were all dragged lower as the Greek deal boosted appetite for riskier assets in the euro zone.
Spanish and Italian 10-year yields hit one-month lows at around 1.51 percent and 1.40 percent respectively.
Portuguese yields fell more than 6 bps to a three-week low just below 3 percent. Just a year ago protracted Greek debt talks triggered fears of a Greek exit from the euro zone and led to heavy selling in regional bond markets.
A deal to unlock further aid is a positive development for Greece's creditworthiness, Moody's said.
Moody's rates Greece Caa3, deep in junk territory, with a stable outlook.
It is set to review the rating on June 24.
A thumbs-up from the Eurogroup could see the European Central Bank restore a waiver for Greek government bonds that could deliver cheaper funding to its troubled banks, and even make Athens's bonds eligible for quantitative easing.
"Another important factor which many are not paying attention to is that if this trend in the bond yield continues like this, it will make the ECB think about whether to add Greece to their shopping list and that will massively drive the yield even lower," said Naeem Aslam, chief market analyst at Think Forex.
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