LONDON: Greece's conditional financial rescue deal with Europe brought relief to the euro zone's lower rated debt markets on Monday, easing investor concerns about the outside risk of Athens leaving the currency union.
The vital four-month extension to euro zone funding, reached after the new Syriza-led government made big concessions, remains subject to Greece passing reform promises.
Spanish and Italian 10-year bond yields fell 7 basis points each to 1.43 percent and 1.50 percent, respectively. Portuguese yields dropped 3 bps to 2.21 percent.
"With the Grexit scenario off the table - at least over the next few months - systemic risk will be priced out further today and we expect more pronounced ... (peripheral yield falling) momentum to unfold," Commerzbank analyst Alexander Aldinger said. Greek markets are closed for a bank holiday.
Friday's agreement, which opens the possibility of lowering a target for the Greek budget surplus after interest payments and avoids some language that has inflamed many Greeks, merely buys time for Athens to seek a long-term deal with Europe.
Greek Prime Minister Alexis Tsipras, who came to power promising to tear up the bailout agreement and end austerity, insisted the negotiations were a success. Some investors remained wary.
"First of all the Greek government has to present a list of reform measures... by the end of today," said Gary Jenkins, chief credit strategist at LNG Capital.
"Even for the euro zone, which has had a lot of practice at the matter, kicking the can all the way from Friday to Monday isn't exactly a Ronaldo-like effort."
Jenkins "assumed" a deal will be finalised, but says he would wait until Tuesday "to buy bonds". He said the deal was not a victory for anyone, despite Greece being the party to make the most compromises, as its debt, at 1.75 times the size of economy, still had to be restructured at some point.
Euro zone members Ireland and Portugal have already exited their bailouts, but Greece faces yet another programme - on top of the previous two bailouts totalling 240 billion euros - when the extension expires.
Officials hope the deal will curb outflows from bank deposits. About 1 billion euros flooded out of Greek bank accounts on Friday, a senior banker told Reuters, due to savers' fears that the talks would fail and Athens might have to halt such withdrawals or prepare to reintroduce its own currency.
German 10-year Bund yields rose 3 basis points to 0.39 percent as investors dropped low-yielding assets perceived as safe havens.
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