Markets hopeful on Greek debt compromise

Greek government bonds advanced for the first time in five days on speculation that the nation and its international creditors are moving toward an agreement that will help ensure Greece is not left short of funds.

Finance minister Yanis Varoufakis is due to meet his 18 eurozone counterparts today to propose a short-term funding programme to let Greece revise its current bailout conditions and negotiate a new programme.

Varoufakis said on Monday that Greece will implement about 70% of reforms already included in the current bailout agreement and pursue more overhauls with the Organisation for Economic Co-operation and Development.

“There is room for optimism given these proposals,” said Richard McGuire, head of European rates strategy at Rabobank International in London.

“They indicate a willingness to compromise. We’re optimistic a resolution of some form will be forthcoming and possibly by the end of this month before the current bailout expires, which could see a marked retracement of the selloff we’ve seen since the elections.”

While the yield on Greek three-year notes retreated from highs set since the 2012 debt restructuring, it’s still up from 10.08% before January 25 elections swept the Syriza party to power with a plan to renege on austerity measures required by the troika in return for financial aid.

Varoufakis also said the government neither intends to tear up the existing bailout agreement nor will allow the budget to be derailed. German political leaders have said any extension of assistance to Greece must come with strings attached. Chancellor Angela Merkel said on Monday that the existing aid programmes would be the basis for talks, and that she would wait to hear what Athens has to say.

“Even on the German side you can see the possible contours of a deal,” said Nick Kounis, head of macro and financial markets research at ABN Amro Bank NV in Amsterdam. “What’s very important is the Greek Finance Ministry saying they are willing to embark on a new programme of reforms. You could see a liquidity package on the basis there is enough space and commitment to reform. That would give them a few months to reach a bigger and longer deal.”

To avoid a funding crunch when the current bailout program ends on February 28, Varoufakis is set to present a proposal at the Eurogroup meeting in Brussels that will ask for an €8bn increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named. He will also seek the disbursement of €1.9bn of profits that eurozone central banks made on their Greek bonds holdings.

German finance minister Wolfgang Schaeuble said reports that the European Commission will grant a six-month period for further discussions were “wrong”.

He said told reporters in Istanbul that ministers will not agree a new Greek programme today. Market News had reported the European Commission will present the compromise proposal to the Eurogroup today.

The European Commission also denied reports that it will present a compromise proposal, saying “very intense contacts are ongoing between” Commission president Jean-Claude Juncker, Greek prime minister Alexis Tsipras and others, and that the plan being worked on is to keep Greece in the eurzone. Expectations are “low” for a final pact this week, the commission said.