Greek short-term bond yields rise sharply

Greek government bond yields rose sharply on Tuesday as policy makers readied their plans in case Athens does not reach an agreement with creditors, forcing a technical default.

Intensified selling of Greek debt was accompanied by a rush to the safety of German bonds, driving the 10-year Bund yield down to a fresh record low.

Pressure on debt and stocks in Athens was triggered after the Financial Times reported late on Monday that Athens was preparing for a default on debt obligations by the end of the month, if the anti-bailout government fails yet again to agree terms of a new rescue deal.

On the July 2016 bond, yields - which move inversely to the price - soared94 basis points to 21.49 per cent, against this year's closing peak of 23.44 per cent. Prices of bonds maturing in 2019, 2025 and 2027 also slid, with the yield on the 10-year rising 14bp to 11.40 per cent.

The cash-strapped government has been locked in negotiations with eurozone creditors to unlock bailout funds, which would keep the banking system afloat. While Athens made a €450m payment to the fund last week, people briefed on the government's thinking say that the country will not make future outlays if an accord over economic reforms is not reached later this month.

Investors and analysts are looking towards April 24, when finance ministers from across the eurozone will meet in Riga to discuss the reforms put forward from Greek prime minister Alexis Tsipras. The country has more than €2.5bn due to the IMF in May and June, along with expenses for pensions and government employee salaries.

Strategists with Rabobank said they viewed the development as "perhaps more of a negotiating tactic than a substantial threat" and that the government was likely finding increasing difficulty between striking an agreement and pacifying the country's electorate.

The bank said: ''It is perhaps little wonder the rumour mills are spinning but ultimately we maintain that when push comes to shove, the Greek government (ultimately) has more to lose by not paying its dues than seeking a short term political shot in the arm.''

Renewed tension over the plight of Greece, bolstered the market for German benchmark bonds. The yield on ten-year Bunds, which have been rallying hard since the run-up to the European Central Bank announcing its €60bn a month purchases of sovereign credit and other assets, dipped to just 0.135 per cent.

Prices of shorter-dated German debt have risen so high that yields on the country's two-year and five-year bonds have turned negative, in a development that was previously unknown in a market where investors generally purchased bonds for the income payments.

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