Greek bonds hit as investors nervously eye Eurogroup meeting

Yields on a two-year Greek bond have climbed sharply today as investors eye a crunch meeting between Athens and its creditors to make hay on the country’s bailout next week.

Greece’s bonds have endured volatile trading after a public spat between Brussels and the International Monetary Fund over their diverging views on the Greek economy erupted last week.

EU officials have since insisted they are making good headway with the Fund and the Greek government to bridge their differences over the economic reforms Athens needs to commit to in order to qualify for its next tranche of bailout cash.

Pierre Moscovici, the EU’s economics chief, is in Athens meeting with Greek prime minister Alexis Tsipras and finance minister Euclid Tsakalotos today. He has struck an optimistic tone over talks ahead of the February 20 meeting in Brussels.

“I am confident that progress will continue. We will try for an agreement, discussions are difficult but if you try you might have progress”, said Mr Moscovici, a former French finance minister.

“Today we are closer than yesterday and tomorrow we will be even closer”.

Markets have been nervously eyeing next Monday’s meeting of the Eurogroup which will be the last major discussion over Greece before a roster of major elections beginning with the Netherlands in March.

The yield on a Greek two-year bond – which has become a barometer for its bailout tensions – is up 34 basis points at publication time to 9.3 per cent. Greece’s 10-year yields are up 10 basis points to 7.4 per cent.

Greece’s creditors differ on the budgetary targets baked into the rescue programme, with the IMF asking Athens to legislate for around €4bn in tax and pension reform measures as its condition to stay involved in the country’s bailout after nearly seven years.

Although Greece should have enough cash to make a series of debt repayments in the coming months, it is not expected to make a €7bn July repayment without a fresh injection of rescue funds.

Following talks with Mr Moscovici today, prime minister Tsipras said the additional reforms – which include raising the threshold for paying income taxes – should not impose an additional austerity burden on the crisis-hit economy.

The measures should have “zero net fiscal impact. The message is enough with austerity”, said Mr Tsipras.

A “comprehensive” agreement, where all sides tie up their differences over economic reforms, primary budget targets and debt relief is “highly unlikely” next week, said Mujtaba Rahman at Eurasia group.

“More realistic is that the Eurogroup lays down some political building blocks that will allow for a deal later in March, prior to elections in the Netherlands in the middle of that month”, said Mr Rahman.

Additional reporting from Eleftheria Kourtali. Chart via Bloomberg

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