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Greek bond yields, CDS fall, yield curve steepens

LONDON, April 12 (Reuters) - The yield on short-dated Greek government bonds fell by over a full point on Monday, after after euro zone finance ministers on Sunday approved a 30 billion euro aid mechanism for Greece.

The move took the 2-year bond yield to around 5.9 percent, below the 10-year bond yield, according to traders. That normalised the country’s yield curve after it inverted last week on fears over Greece’s ability to fund its debt. However, bid offer spreads were wide at around 90 basis points.

Euro zone finance ministers approved a 30-billion-euro emergency aid mechanism for debt-plagued Greece on Sunday, but stressed Athens had not requested the plan be activated yet.[ID:nLDE63A0BO]

The Greek/German 10-year bond yield spread GR10YT=TWEBDE10YT=TWEB narrowed to 355 basis points versus 409 basis point at Friday's settlement close. The cost of protecting government debt against default in Greece and other peripheral euro zone member states tightened on Monday, according to credit default swap monitor CMA DataVision.

Five-year CDS on Greek government debt fell to 359.0 basis points from 426.0 bps at the New York close on Friday.

It means the cost falls to 359,000 euros to protect 10 million euros-worth of Greek government bonds.

The tightening was also felt along the Greek CDS curve, with the one-year CDS at 453 bps, down from 649.6 bps. “Normally we don’t see a lot of flows in the shortest CDS at this time of the day. But we are seeing a good amount this morning across the short end of the CDS curve in Greece,” said Simon Mott, marketing manager at CMA DataVision in London.

The five-year Portuguese CDS tightened to 148 bps from 157.7 bps on Friday.

Reporting by William James