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Slight revival as German banks join rollover

BOND markets continued to see positive momentum yesterday as German banks signed up to the Greek debt rollover last night.

The market for government bonds has enjoyed a sustained, though limited, recovery in recent days after it became clear that Greece would not be allowed to drift into a messy debt default. German Finance Minister Wolfgang Schaeuble said German banks and insurers will contribute €3.2bn to the second Greek bailout.

As the German finance chief met bankers, the bond market continued to creep into more positive territory. The yield or interest rate on Greek two-year bonds fell to 25.8pc, down from more than 30pc at the height of the recent crisis.The two-year bonds are the ones affected by this week's talks.

Irish and Portuguese two-year bond yields barely moved with recovery there so far limited by fears a Greek-style second bailout would catch the shorter dated maturities there too.

The Irish two-year yield was 12.97pc last night compared with 13.057pc on Wednesday. Portugal's two-year bonds yielded 12.54pc yesterday up from the previous 12.42pc close.

Banks across the eurozone are being asked to roll over a large proportion of Greek government debt that falls due between now and 2014.

French banks have already signed up to the outlines of a deal that will allow Greece to avoid repaying 70pc of cash owed as it falls due and pay it back over 30 years instead.

Details of the plan for German banks have yet to be finalised but it's expected to follow the French model.

German financial institutions hold just €2bn of Greek government debt due to be repaid by 2014. Germany's bad bank -- their version of NAMA -- has another €1.2bn.

German banks and insurers have agreed to roll over those debts, the German finance minister said, though the bulk of Greek debt held in Germany matures after 2020 so won't be caught up in the current deal.

"This is the number we'll feed into the European process," Mr Schaeuble said at a news conference.

The relatively small number involved means Germany's banking giants will be well able to absorb the hit of restructuring the debt. The German package is expected to be agreed by Sunday, when eurozone finance ministers meet in Brussels.

Irish Independent