* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Feb 19 (Reuters) - Greek government bond yields dipped on Monday after a ratings upgrade from Fitch that highlighted improving sentiment towards the indebted southern European state.
That marked an outperformance of euro zone peers, with yields across the currency bloc creeping higher in the absence of any fresh drivers. Overall trade was subdued due to public holidays in Asia and the United States.
For now, the spotlight turned to Greece where on Friday Fitch upgraded Greece’s long-term rating to ‘B’ from ‘B-‘ and kept its outlook positive.
Fitch said general government debt sustainability would improve on sustained economic growth and reduced political risks.
That marks the second ratings upgrade this year — S&P Global Ratings last month lifted Greek ratings for the first time in two years on improvements in the finances and fiscal outlook for the debt-laden nation.
Sentiment has been boosted by expectations that Greece will exit it latest bailout in August and get debt relief from its international creditors.
“Greece’s ratings story is on track and strongly supported by progress in reforms,” said DZ Bank rates strategist Sebastian Fellechner.
“Keep in mind that it is possible that Greece will get debt relief, which is a supportive factor.”
Euro zone finance ministers meet in Brussels later on Monday, with Greece’s economic adjustment programme expected to be among the topics of discussion.
Greece’s 5-year bond yield was down 5 basis points at 3.39 percent early on Monday, outperforming euro zone peers.
The gap between 10-year bond yields in Greece and top-rated Germany was at around 351 basis points and close to its tightest in a week.
With the exception of Greece, 10-year bond yields in the euro area were 1-2 basis points higher - unwinding Friday’s falls.
Analysts said sentiment towards bonds remained bearish given expectations of major central banks stepping back from ultra-loose monetary policies.
But they added that after sharp rises over the past two months, investors were looking for fresh drivers before pushing yields any higher.
Goldman Sachs on Friday revised up its 10-year bond yield forecasts by around 20 bps across the board, reflecting upgrades to its expectations on growth and inflation in the major economies. (Reporting by Dhara Ranasinghe; Editing by Robin Pomeroy)