Greece’s political crisis sends bond yields soaring

Prime Minister Antonis Samaras’s failure to gather enough backing for his presidential candidate is creating havoc in Greece’s bond market.

Ten-year bonds are down for a fourth month, the longest stretch since 2011.

The yield on three-year notes climbed on Monday 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 April 2010 this month, and benchmark stock indices in Italy and Spain lost more than 0.9 percent.

“We will see weeks of concern over the election, and thus nerves in eurozone 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.”

On Monday, the rate on 10-year bonds climbed above 9.5 percent for the first time since September 2013.

Three-year yields jumped 190 basis points, or 1.90 percentage points, from last Tuesday to 12.09 percent and reached 12.21 percent earlier.

A higher yield on the shorter-maturity notes, also known as an inverted yield curve, may reflect rising concern that Greece will not repay its obligations in full.

CDS insuring $10 million of Greek debt for five years were quoted at $3.65 million upfront and $500,000 annually, according to CMA.

That’s up from $3.45 million in advance on December 24 and signals a 64 percent probability of default.