Greek debt jitters drive German yields close to record lows

Nervous investors drove safe-haven German Bund yields close to record lows on Wednesday, amid concern over Greece's ability to resolve its debt crisis, a day before it must repay a loan to the International Monetary Fund.

Although cash-strapped Greece successfully sold €1.138 billionof six-month Treasury bills on Wednesday, doubts remain over its ability to find enough funds to repay all its debts in the coming weeks. Athens must roll over another €1 billion on April 15th.

The T-bills, which saw strong demand from investors, were sold at a yield of 2.97 per cent, unchanged from a previous sale in March and the highest rate in 11 months. Greece is now paying to borrow for six months almost twice what Portugal pays to borrow for 10 years.

Shut out of debt markets and with aid from official creditors frozen, Greece has scrambled to cope with its redemption payments. It must repay the IMF €450 million on Thursday.

"Although Greek officials have said that they have the money to repay (the IMF), given that we have the four-day Greek Orthodox Easter holiday weekend coming up, I think there is still tail risk attached," said Chrisoph Rieger, head of rates and credit research at Commerzbank in Frankfurt.

“No one, not even the Greek authorities, seems to have a clear 20/20 vision of how long the money will exactly last ... but it seems likely that they’ll be able to cope without fresh money until two weeks’ time, when we have the Eurogroup meeting.”

German 10-year yields were 3 basis points lower at 0.158 per cent, close to a record low of 0.152 perc ent hit last week.

Jitters over Greece, as well as sparse new bond supply from Germany, saw investors snap up €3.29 billion of two-year German bonds at a record low yield of -0.28 per cent on Wednesday.

The European Central Bank’s €1 trillion bond-buying programme also helped to keep yields on top-rated bonds close to all-time troughs.

Greece has its hopes set on another meeting of euro zone deputy finance ministers later this week, although it is unlikely that a deal can be reached by then. The next meeting of euro zone finance ministers - the Eurogroup - will take place on April 24th.

"I think Greece will repay the loan to the IMF. From that standpoint, I don't think there will be a case for default in the very near-term," BNP Paribas strategist Patrick Jacq said. "The weeks ahead are crucial."

Italian and Spanish 10-year yields were up at 1.20 per cent and 1.19 per cent respectively, though the moves were modest, thanks to insulation from the ECB’s bond-buying scheme.

Reuters