Prime Minister Antonis Samaras’s failure to gather enough backing for his presidential candidate is creating havoc in Greece’s stock and bond markets.
The ASE Index tumbled as much as 11 percent today, extending its December slump to 15 percent, the most since June 2013. Ten-year bonds are falling for a fourth month, the longest stretch since 2011. The yield on three-year notes climbed today to the highest level since they were sold in July.
Investors bailed after the defeat prompted Samaras to recommend parliamentary elections for next month, raising concern the opposition Syriza party will prevail and jeopardize terms of the country’s financial bailout. A gauge of European stock volatility has surged the most since October 2008 this month, and benchmark stock indexes in Italy and Spain lost more than 2 percent.
“We will see weeks of concern over the election, and thus nerves in euro-zone equity markets, until we can see what the outcome of the election might be,” said Justin Urquhart Stewart, who helps oversee about $10 billion at Seven Investment Management LLP in London. “Although Greece is financially a minnow, its political reverberations around the currency union could be significant.”
Attica Bank, Eurobank Ergasias SA, and National Bank of Greece SA sank more than 7 percent today, posting some of the biggest drops in the ASE. The index was down 4 percent at 4:27 p.m. in Athens.
After rising to an almost three-year high in March amid optimism about the nation’s economic recovery, the ASE has slumped 40 percent. Today’s decline extended its 2014 loss to 30 percent, the worst after Russia’s dollar-denominated RTS Index, which sank 45 percent.
Traders are showing little faith Greek stocks will rebound any time soon. Bearish bets on an exchange-traded fund tracking Greek shares climbed this month to the highest level since May 2012, just before the benchmark ASE fell to a low in the wake of the nation’s debt restructuring. They’ve also pulled money out of that ETF for a record fifth month.
Greek sovereign debt has trailed its euro-area counterparts this year, gaining 7.3 percent compared with a regional average of 13 percent, according to Bloomberg World Bond Indexes.
Today, the rate on 10-year bonds climbed above 9.5 percent for the first time since September 2013. Three-year yields jumped 182 basis points, or 1.82 percentage points, from Dec. 23 to 12 percent and reached 12.1 percent earlier. A higher yield on the shorter-maturity notes, also known as an inverted yield curve, may reflect rising concern that Greece won’t repay its obligations in full.
Greece, the country that sparked Europe’s sovereign-debt crisis in 2009, received two financial rescues and swapped existing securities for new 2 percent bonds maturing between 2023 and 2042 as part of the world’s biggest sovereign-debt restructuring in 2012.