Greek bonds buck sell-off after PEPP boost

LONDON: Greek government bond yields fell for a second session in a row on Friday, avoiding a sell-off that struck the rest of the market. The European Central Bank's cautious stance has supercharged southern Europe and especially Greece, the biggest beneficiary of the ECB's pandemic emergency purchasing programme (PEPP).

The ECB said on Thursday it would trim the pace of its emergency bond purchases from a "significantly higher" level announced in March, but was keen to stress it wasn't about to close the money taps, with ECB chief Christine Lagarde saying: "The lady isn't tapering."

Greece was included in ECB bond purchases under the central bank's COVID-19 response for the first time, having been barred previously because of its lack of an investment grade rating.

"There's quite a widespread assumption that the ECB will ease further in December - either an increase of the asset purchase programme or just extend the PEPP by three or six months," said ING rates strategist Antoine Bouvet.

"If they extend PEPP that is obviously supportive for Greek government bonds in particular. In general we remain bullish on Southern European debt on the back of ECB support." Greek and Italian government bonds had led a broad rally in euro zone debt on Thursday following the ECB's decision, with yields falling 7-8 basis points across the curve.

Greek 30-year yields fell a further 5 bps on Friday to 1.58%, while 10-year yields were down 1.5 bps to 0.78%.

Five-year yields fell back to 0%, having rebounded to positive territory last week, when a series of hawkish comments from ECB policymakers worried investors.

Greek bonds managed to buck a sell-off that saw other euro zone government bond yields rise 3-4 bps on the day, in a broader bond sell-off alongside US Treasuries. Bond yields move inversely with prices. By 1446 GMT, Germany's 10-year government bond yield , the benchmark for the bloc, was up 3 bps at -0.34% while Italian yields were up 4 bps to 0.71% after having fallen eight bps on Thursday.

The European Union announced its first set of bond auctions on Friday, saying it will sell three-month and six-month EU-bills next Wednesday to raise up to 5 billion euros.