Investors’ love affair with low-rated but high-yielding eurozone bonds is starting to wane, as political risks dent faith that the European Central Bank alone will be able to ensure the bloc’s recovery.
Greek bond prices fell to their lowest since May on Tuesday, on track to record their first quarter of losses since early last year, while momentous gains in Spanish and Italian debt seen over the last year are also dwindling.
The prospect of Greece escaping the strict conditions of its bailout program, a bid for independence by one of Spain’s richest regions and rumors of moves to topple the Italian prime minister are all troubling investors.
Ten-year Greek bond yields, which rise as prices fall, climbed 13 basis points on Tuesday to hit 6.65 percent, having hit four-month highs of 6.81 percent earlier.
The gap between yields on Greek bonds – the lowest-rated sovereign debt in the single currency bloc – and on benchmark German Bunds stood at some 571 bps, its widest since March.
The rise in yields comes as investors worry that the Greek government could torpedo its chances of further debt relief as it tries to appease an electorate by curtailing a deeply unpopular bailout program.