UPDATE 2-Greek bond yields near record lows as IMF repayment hopes grow

Greek government bond yields were closing in on record lows on Monday after an official said a deal to repay International Monetary Fund loans is imminent, which would mark another step forward from the Athens debt crisis.

Greece will this week seek the consent of the European Stability Mechanism -- the euro zone's bailout fund -- for the early repayment of IMF loans worth about 3.7 billion euros, a source close to the process told Reuters. Greece's benchmark 10-year government bond yield slipped three basis points to 3.27 percent, its lowest since September, 2005 and approaching the record low of 3.203 percent.

Five-year yields also reached a 13-year low of 2.15 percent . "If they do accomplish the early repayment, that helps them reduce the interest rate burden, and adds to what has been quite a good performance story," said Commerzbank rates strategist Christoph Rieger.

Sources told Reuters that Greece is planning a bond issue in late June to raise money for the repayment. Most other 10-year euro zone bond yields rose to new three- week highs after Europe and China released improved data late last week. French 10-year government bond yields were last up just over two basis points to 0.42 percent, while the Spanish equivalent was last up three basis points to 1.08 percent .

German 10-year yields, the benchmark for the region, hit a days high of 0.08 percent which is also a 3-1/2 week high. "We have had some positive data surprises both in Europe and in China last week, and that takes the edge off the macro fears. And you also have some positive undertones on U.S.-China trade talks and you don't have this Brexit cliff edge anymore," said ING rates Benjamin Schroeder.

He added, however, that the six-month Brexit extension is unlikely to change central bank plans as they have a longer-term horizon. Euro zone industrial output declined in February but by less than expected, as mild weather meant a surge in energy production at the start of 2019 reversed.

"What this (rise in Bund yields) highlights is that expectations have moved dramatically lower in terms of economic activity - so any sign of a stabilisation does challenge the consensus," Mizuho strategist Antoine Bouvet said. (Reporting by Abhinav Ramnarayan; additional reporting by Virginia Furness and Sujata Rao; editing by Larry King and Ed Osmond)

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