June 25, 2015 / 7:55 AM / 3 years ago

Italy, Portugal, Spain bond yields edge up as Greek debt talks stumble

LONDON, June 25 (Reuters) - Italian, Portuguese and Spanish bond yields rose on Thursday after negotiations to avert a Greek default stalled amid counter accusations between Athens and its international creditors.

Greece’s ruling Syriza party dismissed demands from the creditors as “blackmail” a day after euro zone finance ministers accused Athens of refusing to compromise despite a looming deadline to clinch a deal.

The talks got bogged down on details, with next week’s deadline to repay 1.6 billion euros ($1.79 billion)to the International Monetary Fund looming, and threatening to trigger Greece’s exit from the euro zone.

The EU leaders were scheduled to meet in Brussels later on Thursday.

The latest glitch braked this week’s sharp rally in bonds issued by Portugal, Spain and Italy - the countries most vulnerable to contagion from Greece - though the rise in yields remained modest with many investors still expecting a last-minute deal.

The modest moves also reflect investors’ confidence in euro zone firewalls to deal with the bloc’s debt crises, including the European Central Bank’s trillion euro asset purchase programme.

Italian and Spanish 10-year yields were 2-3 basis points up at 2.16 percent while Portuguese equivalents nudged 2 bps higher to 2.80 percent, bouncing off a three-week low of 2.68 percent hit on Tuesday when there seemed to be progress in the Greek talks.

“Whereas we saw an almost euphoric response in the market at the start of the week, now reality is setting in and we are still quite far away from a done deal,” said Rabobank strategist Lyn Graham-Taylor.

“We ultimately think that Greece will stay in the euro zone but the lack of liquidity coupled with negative news on Greece means it’s very difficult to trade without getting cut out.”

The persistent concerns over Greece has renewed investor demand for safe-haven German Bunds, pushing 10-year yields - the benchmark for euro zone borrowing costs - 1 basis point lower to 0.84 percent. They are still up 8 bps since last week despite the two-day falls.

Greek yields were flat at 10.96 percent.

“Headline risks and the probability that the game of poker will continue to the very last moment point to support for the Bund market and pressure on periphery spreads,” Bayerische Landesbank strategists said in a note. (Editing by Tom Heneghan)

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