* Greek yields extend this week's falls
* Media report says EU weighing extending maturity of loans
* Germany sells 3.28 billion euro of five-year debt
* Expectations of further ECB easing supports demand
By Emelia Sithole-Matarise
LONDON, Feb 5 Greek bond yields fell sharply on
Wednesday after a media report said European Union officials
were weighing extending the maturity of loans to Athens to 50
Citing two officials with knowledge of the discussions,
Bloomberg said the next bailout for Greece may include extending
the maturity to 50 from 30 years, and cutting the interest rate
on some previous aid.
An official close to Greece's debt negotiations with its
international lenders had told Reuters as early as October that
Greece may swap a big chunk of its bailout loans for a 50-year
government bond as a way to achieve debt relief once it attains
a primary budget surplus this year.
With a cut of Greece's nominal debt not an option, Greek and
European Union officials have said some combination of at least
three measures has been under examination to provide debt
relief. These included lowering interest rates on existing
loans, extending the maturities and pay-back schedule, and
relief on financing EU structural funds.
Greek 10- and 30-year yields slid 30 basis
points to 8.10 percent and 7.75 percent
respectively, outpacing euro zone peers, including
bonds issued by bailed-out Portugal.
Yields are down some 60 bps this week, almost reversing a
rise to 2014 peaks on contagion from weak emerging markets.
Among other positive developments on Greece, Athens and its
lenders had largely resolved differences over a potential fiscal
gap this year, removing a hurdle to talks to release bailout
funds, sources told Reuters on Tuesday.
"Today's news is positive in terms of the Bloomberg report
that the EU are considering reducing interest rates on the loans
and moving forward with the programme," said Gabriel Sterne,
chief economist at distressed debt brokerage Exotix.
"There are a lot of overhanging uncertainties the resolution
of which will be of considerable comfort to markets, especially
in an environment where the opinion polls are not looking good
for the government."
An extension of the bailout loans would provide a minor
respite for Athens, some analysts said, but would do little to
lower Greece's overall debt burden from the current 176 percent
of gross domestic product without a debt write-down.
Thirty-year yields remain below those on 10-year paper,
suggesting investors fear they may not be repaid in full.
"The news today provides short-term relief but it doesn't
solve the medium-term issue which is that the debt to GDP ratio
of Greece is not sustainable," said ING strategist Alessandro
Giansanti. "It will be necessary to go for additional measures
such as a cut in the face value of the debt."
German yields fell back to six-month lows after a five-year
bond sale which was supported by bets the European Central Bank
will signal easier monetary policy this week.
Concern over emerging markets and the ECB policy outlook is
favouring German debt, seen as the euro zone's least risky, even
though secondary market yields have been falling.
"Clearly the ECB is in play. A number of people think there
will be a refi cut (on Thursday) and we are one of them," said
RBS strategist Michael Michaelides, adding the consensus was for
more easing "in the next couple of months".
Five-year German yields were 1 bps lower at 0.54 percent
after the sale. The 10-year yield fell as much as 4
bps to 1.507 percent before rebounding to last trade at 1.54
percent after data showed activity in the U.S.
services sector grew faster-than-expected in January.