Greek borrowing costs plummet on reshuffle

Tuesday, April 28, 2015

Greek borrowing costs dropped sharply yesterday as the Greek government reshuffled the team representing it in its talks with eurozone lenders as well as the IMF. After three months of near fruitless negotiations between Greece and in creditors Prime Minister Alexis Tsipras chose to reign in Greek finance minister Yanis Varoufakis, removing his handpicked representative, Nikos Theocarakis, giving responsibility to a member of his inner circle. Eurozone officials were not the only ones encouraged by the move with investors piling back into the Athens stock market, sending it over 4.3% higher yesterday. Greek borrowing costs fell sharply on the announcement with benchmark 5 year government issued Greek bond yields pulling back almost 200 basis points yesterday from 17.988% to 16.023% as market participants anticipated a quickening of pace in an effort to unlock bailout funds of up to €7.2bn.

The euro strengthened against the dollar for the third consecutive session yesterday, settling at 1.0891 against the dollar. Further gains were stopped short by resistance in the form of the 50 day MA but intraday moves saw the single currency push to its highest level against the dollar in three weeks. It seems that Mr Tsipras along with other senior Greek officials has acknowledged that some economic caveats proposed by eurozone lenders may have to be accepted and with Mr Varoufakis relinquishing control of the talks investors hope that the increasing involvement of the deputy PM, Yannis Dragasakis as well as the appointment of George Chouliarakis who will take over the day-to-day negotiations will accelerate negotiations.

Economists polled by Bloomberg expect the Fed to hold off from raising interest rates until at least September as policymakers struggle to stoke inflation while the labour market has begun to show signs of cracking. After last week’s unimpressive initial weekly jobless claims and weaker than expected manufacturing PMI data market participants are increasingly expecting the Fed to hold off until the end of the third quarter before increasing interest rates, choosing to wait for Q2 economic data before any material decision is made. Fed officials will meet today for their two day FOMC meeting and top on the agenda will be the impact of a stronger dollar and a harsh winter which significantly impacted hiring activity. The dollar index has gained 7.77% since the start of the year but has sold off in recent sessions, closing towards 96.765 yesterday, down for the fourth straight session ahead of tomorrow’s FOMC rate decision.  

5-year Greek bond yields drop almost 200bp

GGGB5YR Index Greece Govt Bond 2015 04 28 07 42 40

EUR extends gains against USD

EUR Curncy Euro Spot 2015 04 28 08 01 01

Events for today

0050

JP

Mar

Retail Sales

0930

UK

Q1

GDP

1500

US

Apr

Richmond Fed

1500

US

Apr

Consumer Confidence

Topics: ECB, EUR, DXY
More from: Kash Kamal