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Greek yields edge up ahead of Eurogroup aid talks, IMF payment.

By John Geddie

Greek bond yields edged up on Monday as euro zone finance ministers met to discuss a cash-for-reforms deal for Athens which faces the first of a series of large debt repayments this week.

Greece's government remains hopeful that the Eurogroup meeting will note progress on talks, although its biggest creditor nation, Germany -- facing a eurosceptic backlash from within -- is in no mood to compromise on pension and labour market reforms.

A senior euro zone official told Reuters that Athens has easily enough money left to pay a crucial 750 million euro debt installment to the IMF on Tuesday, the first of big bills due in the coming months.

Unless Greece can reach an agreement to unlock the 7.2 billion euros of bailout funds, it may struggle to honour another 1.5 billion euro payment to the IMF in June and 3 billion owed to the ECB in July, as well as welfare payments.

A failure to pay may not alone see ratings agencies put Greece in default, but it could be a dangerous move that would make it difficult to remain in the currency union.

"The crucial information that nobody seems to know is how much money do they have left," RBC's head of European rates strategy, Peter Schaffrik, said.

"Defaulting on the IMF would have major ramifications and increase the chances of an exit."

Hints of some progress towards a debt deal are also crucial for the ECB to give Greece a green light to sell more short-term debt to its banks afloat. ECB chief Mario Draghi will speak at the IMF in Washington on Thursday.

In what could be another blow for Athens, analysts are expecting Fitch to downgrade its B credit rating on Friday.

Two-year Greek yields edged up 35 basis points (bps) to 20.86 per cent on Monday, while 10-year yields were up a fraction at 10.79 per cent. Greek stocks were down 2 per cent, underperforming other European bourses.

Investor nervousness around the Greek situation also weighed on other low-rated bonds. Italian and Spanish yields rose 5 bps to 1.73 per cent, while Portuguese yields were up 3 bps at 2.33 per cent.

German 10-year yields also edged up, continuing the sharp rise seen over the last couple of weeks which has been triggered by easing deflation fears.

Looking for more evidence that the ECB's trillion-euro bond-buying programme is lifting the euro zone economy, investors will be keeping a close eye on Wednesday's release of first quarter GDP data.

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Publication:Cyprus Mail (Cyprus)
Geographic Code:4EUGR
Date:May 11, 2015
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