Athens repays €450m debt, pushing bond yields lower

Greece repaid €450 million it owed to the International Monetary Fund yesterday, sending bond yields sliding as investors showed relief at the country meeting its latest debt deadline.

A central bank official confirmed that the payment to the IMF had been made. Alexis Tsipras, prime minister, had warned last month that Greece would not be able to pay both its international creditors and social welfare payments without urgent financial assistance from its euro zone partners.

The anti-austerity government was able to repay the IMF after it raided the cash reserves of public agencies and utilities. It should also be able pay back €420 million to international investors when a six-month treasury bill expires on April 14th. But its scope for similar financial engineering is dwindling fast as more debt repayment deadlines loom.

Default looms

A senior Greek official this week said Athens would exhaust its cash reserves this month, putting it on course for a sovereign default in May unless its agrees a new economic reform package with the euro zone to unlock bailout aid.

“Next month is a different matter. We are going to run out of money unless reforms are legislated to make some bailout funds available,” the official said.

Athens faces a €950 million repayment to the IMF in May as well as €2.4 billion in outlays for pensions and salaries.

Economists are split on how and when – or even if – Greece will be able to come to an accord with its lenders, who have balked at some of the concessions Athens has put forward.

The radical anti-austerity government has been unable to reach an agreement with the EU and IMF that would unlock €7.2 billion in European funding because of foot-dragging by its economic team over reforms that would contradict Syriza’s election promises not to raise taxes or back privatisations.

Finance ministry experts are scrambling to wrap up technical talks this week with officials from the European Commission, the IMF and the European Central Bank, with the aim of reaching a deal with euro zone finance ministers in Riga on April 24th.

Deputy euro zone finance ministers want Athens to flesh out its draft reform plan by the middle of next week.

Yields on the country’s shortest-dated notes declined yesterday, with three-year bonds declining 54 basis points to 20.08 per cent and five-year bonds falling 30 basis points to 14.98 per cent. The 10-year yield, which moves inversely to its price, slipped 18 points to 11.03 per cent.

Industrial boon

The payment to the IMF preceded economic figures from Greece’s national statistics office that showed a surprise jump in industrial production and an improvement in its labour market.

Output from Greek industry climbed 1.9 per cent in February from a year earlier, a sharp contrast with market expectations for a 2.1 per cent decline.

A 20 basis point slide in unemployment also added optimism, with the closely scrutinised rate declining to a still painfully high 25.7 per cent in January.

Deflation remains a headwind, with the Greek EU-harmonised inflation rate for March steady at minus 1.9 per cent year on year. – Copyright 2015 The Financial Times Limited