Greek bonds drop a third day on concern budget controls at risk

Greece’s government bonds fell for a third day, pushing 10-year yields to the highest level in six weeks, amid concern the nation is seeking to become self- financing and put its budget controls at risk.

The additional yield investors demand to hold Greek 10-year securities over their German equivalents also touched a six-week high as Greece’s Development Minister Nikolaos Dendias met European Union Task Force Head Horst Reichenbach in Athens today. National governments risk complacency with borrowing costs at historic lows, according to Moritz Kraemer, chief ratings officer at Standard & Poor’s.

“There is concern about whether they will continue to adhere to strict fiscal policy and go on with the required reforms” outside of an official program, said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “We have to be reminded also that Greek bonds have been the best performers this year, so there is some taking of profit involved and you know they are not very liquid. So when you have some decent selling it’s very easy to have quite an important impact on the price.”

Greek 10-year yields climbed 10 basis points, or 0.1 percentage point, to 6.17 percent as of 10:57 a.m. London time after touching 6.21 percent, the highest since Aug. 14. The yield fell to as low as 5.52 percent this month after surging to a record 44.2 percent in March 2012. The 2 percent bond maturing in February 2024 fell 0.625, or 6.25 euros per 1,000-euro ($1,285) face amount, to 80.31.

Spread widens

The yield difference, or spread, between Greek and German 10-year bonds widened 11 basis points to 516 basis points, the most since Aug. 13, based on closing prices.

Greece’s bailout program will be a topic of discussion in coming weeks, German Chancellor Angela Merkel said Tuesday following talks with Greek Prime Minister Antonis Samaras in Berlin. While euro-area support for Greece expires this year, the International Monetary Fund is scheduled to continue disbursing funds until the first quarter of 2016. Samaras is seeking to reduce reliance on the 240 billion-euro bailout based on euro area and IMF loans that came with reform conditions.

Greek bonds returned 29 percent this year through yesterday, Bloomberg World Bond Indexes show. That compares to a 6.9 percent return for German securities and a 13 percent gain for Spain’s. [Bloomberg]

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