Greek bonds rally after IMF and EU agree debt relief

The Greek government bonds strengthened on Wednesday after euro zone finance ministers agreed to unlock new funds and gave their firmest offer yet of debt relief. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 21bps to a 6 month low at 7.070 pct and the yield on the short-term 2-year bonds dipped more than 100bps to 7.078 pct by 0855 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.

Meanwhile, the benchmark ASE index rose 0.81 pct or 5.18 points to 647.26 by 0855 GMT.