Bonds: Traders tense ahead of Eurogroup meeting, September Fed hike seen less likely
Sovereign bond yields retreated amid hopes that a last-minute understanding between Greece and its creditors was still possible.
Reports, later confirmed, surfaced shortly after midday that Greece was reconsidering a proposal made late on Monday by European Commission president Jean Claude Juncker.
The key aspect of that “proposal” was the inclusion of a commitment to evaluate a softening of the terms on the Mediterranean country´s debt pile in October.
Later in the afternoon however, reports indicated that German chancellor Angela Merkel had said that no new agreement was possible until after the Greek referendum on 5 July, although another Eurogroup meeting had been scheduled for 18:00 on Tuesday.
Credit-default swap contracts on Greek debt were putting the probability of a default by the country within five years at 88%, versus 71% as of Friday.
That came as 10-year Greek government bond yields edged higher by another 35 basis points to 15.42%, while euro/dollar was 0.76% lower to reach 1.1149.
To take note of, some analysts had begun to highlight how a “reversible” euro, where countries could indeed be forced out, was indeed a 'negative' for the currency, albeit perhaps more on a medium-term basis.
Ironically, the euro was on track for its first quarterly advance since the start of 2014, after having risen by approximately 4%.
Yields on 10-year Gilts and benchmark US Treasury notes slipped slightly lower following the sharp drops seen on the previous day.
Both were lower by one basis point to 2.02% and 2.31%, respectively.
Fed funds futures were pricing in a 28% probability of a first rate hike by the US Federal Reserve by September, down from 38% on 26 June.