Greek bonds rally after parliament approves further reforms

The Greek government bonds strengthened on Monday after Athens agreed to the latest batch of austerity measures of EUR 5.4 billion in order to qualify for a EUR 11 billion injection of bailout cash. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 36bps to a 6 month low at 7.218 pct and the yield on the short-term 2-year bonds dipped 20bps to 8.327 pct by 1000 GMT.

Yesterday, 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.

The Euro zone finance ministers meet on Tuesday to sign off bailout loans for Athens and are likely to forge a tentative and highly conditional plan to help the country to re-profile its debt burden to make it more sustainable.

“Thumbs up from the Eurogroup may also see the European Central Bank (ECB) restore a waiver for Greek government bonds that could deliver cheaper funding to its troubled banks, and even make Athens' bonds eligible for quantitative easing. It seems to all be falling into place for Greece," said Commerzbank strategists Rainer Guntermann to Reuters.

Meanwhile, the benchmark ASE index rose 1.01 pct or 6.48 points to 645.96 by 1000 GMT.