Greek bonds and stocks bounced back on Tuesday ahead of an emergency meeting of euro zone finance ministers that some hope could be the first step to finding an agreement to ease the standoff between Greece and its lenders.
Finance Minister Yanis Varoufakis makes his debut meeting with euro zone peers on Wednesday when he will outline Athens' demands for a new debt deal that would allow it to shake off much of the austerity imposed by a European Union/International Monetary Fund bailout since 2010.
Athens also wants a "bridge agreement" until June to buy time until a properly negotiated settlement, a demand that was rejected by the head of the Eurogroup finance ministers Jeroen Dijsselbloem.
"We know it's going to be a tough period of negotiations but at least they've got some sort of starting point," said Orlando Green, a strategist at Credit Agricole. "It's a game of chicken at the end of the day but it will eventually result in one side bending more than the other but they both claim victory."
Yields on three-year Greek bonds fell by as much as 178 basis points to 20.07 per cent with five-year yields down 90 bps at 15.68 per cent. They remained far above 10-year equivalents which were 53 bps lower at 10.78 per cent reflecting investor concern that they may not get all their money back.
Greek shares advanced, with the country’s benchmark ATG equity index rising 2 per cent. Shares in its major banks also rose, with the Athens Stock Exchange FTSE Banks Index rising 7.7 per cent early in the day before retreating to last trade 3.8 per cent higher.
The Greek banking index is down about 30 per cent since the start of 2015 but has bounced off record lows hit on Jan. 28. The recovery remained fragile as Greek officials kept up their rhetoric before Prime Minister Alexis Tsipras' confidence vote in parliament that he is widely expected to win. Defence Minister Panos Kammenos said if Greece failed to get a new debt deal with the euro zone it could look elsewhere.
Other European countries are also increasingly concerned about potential fallout on their economies of a Greek exit from the euro zone. British finance minister George Osborne said the danger of a "miscalculation leading to a "very bad outcome" between Greece and the euro area is increasing, Bloomberg reported.
Some analysts say both sides needed to strike some kind of compromise to avoid the sharp selloff in Greek stocks and bonds from spilling over to other markets. "It would seem the market is taking a glass half full view of Greece's reported proposal - perhaps simply owing to the fact there is a proposal at all," Rabobank strategists said in a note.
Reuters
