Hopes for Greek accord lift Bund yields

Waning haven demand kept German Bunds higher for the week while Greece's short-term government debt yields shifted lower on Friday, on hopes that a eurozone finance ministers summit will ease the threat of a default in Athens.

Angela Merkel, the German chancellor, said on Thursday night after a preliminary meeting with Alex Tsipras, the Greek prime minister, that "everything must be done" to prevent Greece running out of cash.

Germany's 10-year Bund yields were heading away from the record lows of 0.05 per cent seen last week when worries about Greece's financial position were growing and investors were seeking haven assets.

On Friday, the yield was at 0.173 per cent and this marks the first notable bout of selling pressure on the bond market since the European Central Bank launched quantitative easing last month.

Bill Gross, the veteran bond manager at Janus, said on Thursday that the 10-year German Bund was offering an opportunity for "the short of a lifetime" with its yield around the recent historic lows.

Meanwhile, Greek yields were heading down from record levels seen earlier in the week in the run-up to the summit. On Friday, the yield on short-term debt due in 2017 was down 126.8 basis points at 24.38 per cent, while 10-year yields were 12.6 bps lower at 12.20 per cent.

"Short bouts of weakness alternating with periods of relative stability will persist in the credit market over the next couple of weeks until some clarity on Greece emerges,'' said Thibault Colle, strategist at UBS. "We would not downplay potential contagion risks from Greece to the rest of European credit markets despite more resilience this week."

Analysts were looking ahead to May 1, when Greece is due to pay €200m to the International Monetary Fund.

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"The key question remains the political will of the current Greek government to agree on a lasting, mutually beneficial deal. We believe there are reasons to expect a positive final agreement between the new government and [it's creditors]."

The euro was up 0.6 per cent on Friday at $1.0894, for a rise of 2.2 per cent from its weakest level of the week.

Nonetheless, Calvin Tse at UBS said: "We remain sellers of the euro, as political uncertainty runs high, reserve managers rotate out of the currency and core yields remain pinned near zero."

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