Greek bonds shine after unpopular reforms passed

Borrowing costs in Greece fell sharply Monday, with 10-year government bond yields hitting four-month lows after lawmakers in Athens passed unpopular pension and tax reforms that could encourage the country's creditors to unlock bailout cash. Two-year Greek bond yields tumbled 80 basis points, while five-year yields slid 30 bps, outperforming other eurozone bond markets. The approval came hours before eurozone finance ministers were due to discuss Greece's progress on reforms and whether it had met the terms of a multi-billion euro bailout.

Signing off on the reform review will unlock more than 5 billion euros ($5.7 billion) to ease Greece's squeezed finances and meet debt repayments due in June and July. Greece also hopes the sign-off will launch discussions on debt relief.

"The vote in parliament is constructive and positive for the Eurogroup (ministers) talks and that should help the decision to give Greece additional support," said Patrick Jacq, European rate strategist at BNP Paribas. "Although the Greek bond market is illiquid, the fact that yields are lower is a good sign," he added.

Greece's 10-year bond yield was down 20 bps at 8.4 percent, its lowest level in four months. That contrasted with a rise of 1 bps in top-rated German Bund yields to 0.16 percent, squeezing the yield gap between the two to its narrowest in almost four months.

Some hedge funds are eyeing investments in Greek stocks and debt they see as cheap, predicting a recovery after seven years of crisis. They say last year's recapitalisation of Greek banks and new bankruptcy rules that should make it easier for lenders to sell their non-performing loans, plus a fall in stock prices to historic lows, create opportunities for risk-taking investors. Greek stocks rose 1 percent yesterday to four-month highs. Some analysts were cautious, pointing to other obstacles in Greece's path such as a request from the IMF for legislation on contingency measures in the event current fiscal targets are not met.