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By John Geddie
LONDON Dec 14 Greek government borrowing costs
rose to one-month highs on Wednesday after the euro zone's
bailout fund said it had put short-term debt relief measures for
the country on hold.
The European Stability Mechanism said it had suspended the
measures designed to cut Greece's public debt after the
government proposed to make a one-off payout to pensioners in
Greek 10-year government bond yields rose 45 basis points to
a one-month high of 7.30 percent, while five-year
yields rose 40 bps to 8.19 percent, also a
one-month high, according to Tradeweb data.
"The news has added to some pressure on Greek government
bonds but I would see this as part of the ongoing negotiations
between Greece and its creditors," said DZ Bank bond strategist
Christian Lenk. "At the end of the day, we will see short-term
debt relief measures."
Euro zone finance ministers agreed on Dec. 5 to grant Greece
short-term debt relief that would reduce the amount of the
country's public debt by 20 percentage points of GDP by 2060.
But on Dec. 8, Greek Prime Minister Alexis Tsipras said,
without consulting euro zone lenders, that his government would
spend 617 million euros in one-off benefits for low-income
pensioners before Christmas because Greece exceeded its 2016
primary surplus target.
The ESM and its predecessor, the European Financial
Stability Facility, announced on Tuesday plans to increase
borrowing in 2017 in order to shoulder the burden of Greek debt
relief measures such as a bond exchange with Greek banks.
Greece has been locked in on-off battles with its creditors
for years, and analysts said the suspension of measures on
Wednesday was likely to be posturing in lengthy discussions.
"This is just a way for the ESM and the Troika to make sure
the Greeks comply with everything they have to do," Natixis
strategist Cyril Regnat said.
"All-in-all it is not that big and I'm not worried about the
fate of Greek government bonds. I still think they will be one
of the best-performing bonds next year."
Regnat said he expects Greek bonds to qualify next year for
the European Central Bank's asset-purchase scheme, which should
drive yields lower and pave the way for Athens to return to the
All other euro zone bond yields fell on Wednesday before the
results of a U.S. Federal Reserve meeting investors expect to
deliver its first rate hike in 12 months and flag its stance for
Whereas a hike in rates would normally push yields higher,
on this occasion it is fully priced in and the market is
focusing on any clues to the rate outlook from Fed Chair Janet
(Additional reporting by Dhara Ranasinghe; Editing by Janet