The Greek bond market has been the star performer in the eurozone in the past three months as confidence grows that Athens can turn round its economy.

A combination of better data than expected, China’s pledge to buy the country’s bonds and hopes that international bail-out loans will be extended have boosted investor sentiment.

Greek 10-year bond prices have jumped 10 per cent, with yields falling 13 per cent, since June 30. The Greek bond markets have also recorded total returns of 8 per cent since June 30, according to iBoxx indices. It has comfortably outperformed the rest of the eurozone in price, yield and total returns.

It is the first time the Greek bond markets have recorded positive total returns and seen prices rise over a three-month period since theeurozone debt crisis started last September.

Ireland has been the worst performing market since June 30, with 10-year prices falling 6 per cent, yields rising 25 per cent and total returns of minus 3 per cent.

Analysts say Athens has a long way to go to restore its economy as debt remains high, its economy is in reverse and public sector protests increase.

But in the past two weeks, the Greek bond performance has been impressive, with 10-year yields falling about 1.5 percentage points. They have dropped from 10.42 per cent on September 24 to 8.94 per cent.

Greece’s cost of borrowing over Germany, Europe’s benchmark economy, has also fallen to a premium of 7 percentage points for 10-year debt, the lowest level since June 22.

Gary Jenkins, head of fixed income at Evolution Securities, said: “Greece has surprised investors due to better-than-expected data. China saying it will buy Greek bondsand the IMF suggesting it will extend loans has helped too.”

The growing confidence in Greece was underlined on Tuesday by the success of a short-term debt auction where the cost of borrowing fell by more than a quarter of a point for six-month money compared with the previous sale last month.

Athens issued €1.17bn of six-month bills at a yield of 4.54 per cent compared with 4.82 per cent at a previous sale last month. The amount borrowed was also higher than the planned €900m.

Petros Christodoulou, Greece’s debt manager, said: “There was a marked drop in the yield... it was a very positive outcome.”

Greece is still in effect shut out of the markets for longer-term debt as the borrowing rates it would have to pay are too high.