Greek short-term bond yields elevated ahead of Eurogroup meeting

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It’s Eurogroup day for Greece again.

Eurozone finance ministers are gearing up for their latest discussion on the country’s bailout progress in Brussels this afternoon, in a meeting that had been billed as the last major deadline to unlock Greece’s next tranche of rescue cash before a packed roster of eurozone elections.

But hopes of a major breakthrough have all but dissipated leading up to meeting, as EU and IMF officials remain at loggerheads over the debt relief and austerity targets baked into the country’s €86bn bailout programme.

Those divisions are set to push back an approval of Greece’s second bailout review for at least another month, helping keep the country’s two-year debt yields at elevated levels at the start of the week. (Yields rise when prices fall.)

Investor demand for Greece’s two-year bond maturing in April 2019 has tailed off again this morning, with the yield up 0.05 percentage points to 9.7 per cent. The yield had hit an eight-month high of nearly 10 per cent following an escalation of a spat between Brussels and the Fund earlier this month.

Still officials are hopeful they can bridge their gaps at today’s Eurogroup, with EU officials sounding hopeful of meaningful progress.

Greece is likely to be asked to legislate for around €4bn in additional tax and reform measures to complete its second bailout review that would unlock around €6bn in rescue cash. That would help ease the government’s cash flow problems over the summer when the country faces a €7bn debt bill to its creditors.

Francois Cabau, economist at Barclays, expects the money to be released ahead of the July deadline as “European creditors are unlikely to leave Greece to default between the French and the German elections”.

However, a wider agreement on the level of debt restructuring afforded to the economy after 2018 could remain out of reach until Germany elects a new president in September. This lack of clarity over debt relief will also keep Greek bonds out of the European Central Bank’s stimulus programme, which is notionally on course to end in December.

“The ride ahead is likely to be bumpy in the run up to July and as EU leaders aim to reach a political and technical agreement on medium-term debt relief measures that would allow IMF financial participation – amidst a divided IMF executive board – and inclusion in ECB’s QE”, said Mr Cabau.

Today’s Eurogroup will be kicking off around 15.00 GMT.

(Chart: Bloomberg.)

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