ECONOMY

Greek yields hit one-month high as Samaras looks to exit bailout

Greek bond yields hit one-month highs on Tuesday ahead of Prime Minister Antonis Samaras’s visit to its biggest creditor Germany, at which he is expected argue that the country does not need a third EU/IMF bailout.

Samaras said before his meeting with German Chancellor Angela Merkel that Greece was beating its fiscal targets and will not need more money from the European Union and the International Monetary Fund, confident that his country’s debt will soon be deemed viable.

His visit comes at a time when Greek public sector workers launched their first nationwide strike after the summer to protest against EU/IMF-prescribed job cuts.

Samaras is expected to soon start negotiating on some kind of debt relief from public creditors in a move which would make its remaining debt easier to service, but investors fear that his willingness to come out of bailouts may hamper his chances.

Borrowing more from the market would increase the losses private investors would have to take in any future debt restructurings, which some see as a risk, particularly if the policy supervision which comes with the bailout is withdrawn.

“There are some worries that Samaras goes to visit Angela Merkel today looking for approval that Greece can refinance itself through markets,» said Daniel Lenz, a fixed-income strategist at DZ Bank.

“The fact that Greece could try to rely on market financing could postpone a lasting solution (on its debt pile) that still needs to be found,» Lenz said, adding that the larger the share of market funding the higher the risk for private investors.

Greek 10-year yields rose 15 basis points to 6.06 percent, their highest in over a month.

Greece has already tapped markets this year, making one of the fastest comebacks to private borrowing of any defaulted sovereign with sales of three- and five-year bonds.

They had mixed results, though and the expectation of many of those buying the paper was that the next debt restructuring would target solely the EU loans.

“Investors want to see a reduction in debt, otherwise Greece going alone is not a viable solution,» said Alessandro Giansanti, senior rate strategist at ING.

At 175 percent of economic output, most debt is being owned by the EU and the IMF.

DRAB DATA

Greek bonds underperformed their euro zone peers, whose yields fell after lacklustre business surveys kept the pressure on the European Central Bank to deliver more stimulus.

The surveys showed euro zone business activity expanding at a slightly weaker pace than expected in September as firms cut prices for the 30th month in a row.

Speaking to the economic and monetary affairs committee of the European Parliament on Monday, ECB President Mario Draghi said the central bank was ready to use additional unconventional tools, closely monitoring risks to inflation.

Earlier this month, Draghi announced a plan to buy asset-backed securities and covered bonds, but markets are increasingly speculating that he will be forced to start buying government bonds, a programme known as quantitative easing (QE).

German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 3 basis points to 0.99 percent. [Reuters]