Uncertainty over Greek deal keeps markets edgy

Market hopes for a Greek deal went on something of a roller coaster ride as initial pessimism turned to hopes after confirmation that Greece would likely table its formal bailout plan to the European authorities later today.

Bond traders early yesterday, however, had been increasingly edgy about the prospects of a deal being struck as the new Greek finance minister, Euclid Tsakalotos, attended a meeting in Brussels, his first since the result of the weekend’s referendum that showed Greeks wanted its government to negotiate better debt terms from its creditors.

Money fled from European equities into core bond markets, making it even cheaper for Germany to raise money on international debt markets.

Ireland’s 10-year bond was little changed at 1.567%, while Germany’s cost of borrowing fell a further 12 basis points to only 0.64%. Italy’s 10-year bond eased 12 basis points to 2.264%.

The markets were initially nervous because they know that politicians are working to a strict deadline, “and that time is running out”, said Ryan McGrath, head of fixed income at Cantor Fitzgerald Ireland.

“The longer it goes on, the larger the risk that it ends without any resolution,” said Mr McGrath.

The ECB is likely to keep the ratchet up on Athens by limiting its emergency funds to Greek banks to €89bn.

Surprisingly, yields on Spanish and Italian bonds also fell, but Ireland underperformed.

Mr McGrath said many were becoming increasingly edgy about the Greek talks.

“It is difficult to see how a deal will be done,” he said. “Both sides are entrenched. It will take a position shift from one of the sides to get a deal done. And it is difficult to see who would move first.”

The euro ended the day slightly higher against sterling, at just over 71p, but fell by about a cent to 1.0972.

“The IMF suggested that the US Fed would push back on the timing of hiking rates and that led to an up-tick in the dollar,” said Philip O’Sullivan, chief economist at Investec Ireland.