Markets saluted a euro zone deal on a huge standby rescue package for Greece, slashing the debt-laden country's borrowing costs and buying its stocks and bonds on Monday as fears of a near-term default dissipated.
The euro rose, the yield on short-dated Greek bonds fell by over a point to around 5.9 per cent and the cost of insuring Greek debt against default narrowed dramatically from Friday's close as markets were impressed by the bigger-than-expected EU rescue plan.
“It’s almost a market that's in disbelief that we've seemingly got a solution to this problem," said Sean Maloney, a rate strategist at Nomura.
But a German government spokesman raised a potential hitch by saying European leaders would have to agree at a special summit to activate the aid mechanism, in which Germany would be the biggest contributor with 8.4 billion euros ($11.4 billion).
The head of the euro zone finance ministers and the European Commission had said a decision by the ministers would be sufficient.
The yield on the country's 12-month T-bill plummeted some 268 basis points to 5.28 per cent, suggesting the threat of a near-term default had been lifted.
Euro zone finance ministers agreed on Sunday on a
30 billion euro package of three-year loans at interest of about 5 per cent, if Greece requests help, with the International Monetary Fund expected
to supply a further 15 billion euros in the first year.
The deal, which would be worth 45 billion euros in the first of three years, with more to be negotiated later, could amount to the biggest multilateral financial rescue ever attempted, dwarfing IMF programmes for Mexico and Argentina.
The existence of a detailed standby plan, even if Greece has not decided to invoke it, should help Athens auction a planned 1.2 billion euros in T-bills on Tuesday.