The last time Greece’s bonds had this bad a week, the nation had just undergone the biggest debt restructuring in history, inconclusive elections had stoked concern it may exit the euro and Mario Draghi’s “whatever it takes” pledge was more than two months away.
The yield on Greek 10-year bonds has surged 200 basis points this week, the biggest leap since the height of the euro- area sovereign-debt crisis in May 2012. Worse still, the yield on three-year notes, issued in July as part of Greece’s emblematic return to capital markets, have surged more than 450 basis points, climbing above the longer-dated rates in a sign that investors are increasingly concerned the nation will be unable to pay its debt.
While Greek yields are still a fraction of what they were at the height of the crisis, the reason behind this week’s selloff has uncomfortable echoes for investors. Prime Minister Antonis Samaras, whose leadership allayed fears of a euro exit, has brought forward the process for choosing a new head of state, boosting concern it will require parliamentary elections next year. That comes as anti-bailout group SYRIZA, whose second place in May 2012’s vote helped spark that month’s rout, lead in opinion polls.
“We suspect Greece is becoming uninvestible again,” said Bill Blain, a strategist at Mint Partners Ltd. “I think opportunistic investors will look to buy the dips and play potential scenarios, but our gut feel is Greece is going to be quarantined from rest of Europe this time.”
Greece’s 10-year yield rose 15 basis points to 9.23 percent at 9 a.m. London time today, having increased 200 basis points, or 2 percentage points, in the week. The rate earlier touched 9.43 percent, the most since September 2013. The 2 percent note due in February 2024 has fallen 10.23, or 102.30 euros per 1,000-euro ($1,239) face amount this week, to 64.45.
The nation’s three-year rate has surged 464 basis points to 10.64 percent this week. The price of the securities is 84.255 after being sold in July via banks at a price of 99.65 percent of face value.
Samaras said Thursday that the markets fear a victory for SYRIZA in potential elections next year and the party brings back talk of a Greek exit from the euro area. SYRIZA responded by saying the Prime Minister “doesn’t hesitate to beg markets to attack the country.”
Failure to rally enough support for Samaras’s presidential nominee, Stavros Dimas, by a third and final ballot on Dec. 29 would require the prime minister to dissolve parliament.
“People are really very worried,” said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. “It’s about the uncertainty. People aren’t thinking it’s a slam dunk that there will be new elections and SYRIZA will win, but the risks are extraordinarily high.”
In the week ended May 18, 2012, Greek 10-year yields climbed 439 basis points to 29.14 percent, a level more than three times the current rate. What’s also different this time is Greece’s ability to infect its European peers.
Spanish 10-year yields are up three basis points this week, compared with 26 in the week ending May 18, 2012. The five basis-point increase in Italian 10-year rates is a sixth of the 30 basis-point jump that week.
The euro area’s other peripheral nations have been insulated by speculation that the European Central Bank, led by Draghi, may extend its asset-purchase plan to include government bonds as soon as next month.
That would be the latest bond-market supportive measure from the ECB, which has already cut interest rates to records, introduced a series of targeted loans and started buying covered bonds and asset-backed securities as it looks to make good on Draghi’s July 26, 2012 pledge to do “whatever it takes” to preserve the currency union.
Spain’s 10-year yield, which peaked at 7.75 percent in 2012, is at 1.86 percent, after touching a record low 1.785 percent on Dec. 8. Italy’s equivalent bond yield is at 2.03 percent after reaching 1.942 percent the same day, also the least on record.
The rate on Germany’s 10-year bund, sought as a haven by investors at times of crisis, has dropped 14 basis points this week, and touched a record 0.657 percent today.
Greek government securities returned 2.8 percent this year through yesterday, Bloomberg World Bond Indexes show. That’s down from 34 percent in the year through Sept. 5. Spanish bonds have gained 15 percent, Italy’s 14 percent and Germany’s 9.4 percent.
Anxiety that voters will kick out leaders committed to Greece’s bailout wreaked havoc on the nation’s markets, with a three-day slump in stocks making them this year’s worst performers behind Russia.
The ASE Index is heading for its worst week since 1987 and has lost 28 percent this year. Only Russia’s RTS Index did worse, with a 44 percent plunge. [Bloomberg]