European bonds rise on Greece deal

The European bonds gained on Wednesday after euro zone finance ministers agreed to unlock new funds for Greece and gave their firmest offer yet of debt relief. Moreover, future course in bond prices are likely to be ruled by the movements in the crude oil market. The benchmark German 10-year bonds yield, which moves inversely to its price fell 1bp to 0.166 pct, French 10-year bunds yield dipped 1bp to 0.491 pct, Italian equivalents tumbled 2bps to 1.402 pct, Netherlands 10-year bonds yield down 1bp at 0.370 pct, Portuguese 10-year bonds yield slumped 5bps to 2.982 pct, Spanish 10-year bonds yield tumbled 2bps to 1.511 pct and British 10-year bonds yield fell 2bps to 1.453 pct by 1030 GMT.

The Euro zone ministers agreed to release EUR 10.3 billion in new funds for Greece in recognition of fiscal reforms pushed through by Prime Minister Alexis Tsipras's leftist-led coalition. According to Reuters recent report, 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.

On Monday, the Greek parliament agreed to the latest batch of austerity measures to be applied to its already weakened economy, including EUR 1.8 billion in tax increases, a VAT hike to 24 pct, from 23 pct, and a new privatization fund. We foresee that the move should be sufficient to allow Euro zone finance ministers to sign off a EUR 3.5 billion bailout payment to Greece when they meet in Brussels tomorrow.

The European bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Today, Crude oil jumped more than 1 percent and pushed closer to $50 a barrel, hitting its highest in over seven months after industry data suggested a larger-than-expected drawdown in U.S. crude inventories last week. American Petroleum Institute inventory data showed crude oil dropped by 5.14 million barrels. Moreover, gasoline stocks climbed by 3.6 million barrels, while inventories of distillate fuels, including diesel and heating oil, fell by 2.9 million barrels. The International benchmark Brent futures rose 1.38 pct to $49.28 and West Texas Intermediate (WTI) jumped 1.32 pct to $49.26 by 0815 GMT.

Yesterday, the Germany first quarter Gross Domestic Product (GDP) growth remained steady at 0.7 percent, trending in the line of market consensus of 0.7 percent. On annual basis, it rose 1.3 percent; lower than the market expectations of 1.6 percent, unchanged from previous 1.3 percent in the last quarter of 2015.

Meanwhile, the pan-European STOXX 600 index was up 0.90 pct and the euro-area blue-chip gauge, the STOXX 50 climbed 1.38 pct. The FTSE 100 Index rose 0.70 pct, the DAX trading 1.34 pct higher and the CAC-40 ticked up 1.04 pct by 1030 GMT.