Greek notes decline amid election campaign as Italian bonds drop

Greece’s notes fell, resuming a slide that pushed three-year yields up to the most since 2012 last week, as the nation began an election campaign that Prime Minister Antonis Samaras said will determine its euro membership.

German securities were little changed, with 10-year yields about two basis points from a record low, before a report analysts said will show inflation in Europe’s biggest economy slowed to the least since 2009 last month. Italian bonds declined, with 10-year yields paring their biggest drop since June, and the euro tumbled to the lowest level versus the dollar since 2006.

“Volatility is going to be a characteristic of the Greek debt market as we head toward the election,” said Richard McGuire, head of European rates strategy at Rabobank International in London. That’s “because of the uncertainty, both of the election result and the relationship between Greece and its creditors. The key question is how much of an impact this will have on Greece’s periphery peers.”

Greek three-year yields rose 53 basis points, or 0.53 percentage point, to 12.72 percent as of 10:06 a.m. London time. The rate touched 14.07 percent on Jan. 2. The 3.375 percent note due in July 2017 slid 0.925, or 9.25 euros per 1,000-euro ($1,195) face amount, to 80.82. The nation’s 10-year rate increased 16 basis points to 9.41 percent.

Greek Election

Samaras used a Jan. 2 speech to warn that victory for the main opposition Syriza party would cause default and Greece’s exit from the euro region. Syriza leader Alexis Tsipras said his party would end austerity measures if it wins the Jan. 25 vote. German Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, Der Spiegel magazine reported.

Germany’s 10-year yield was at 0.51 percent after dropping to 0.492 percent on Jan. 2, the lowest since Bloomberg started collecting the data in 1989. A report today will show German annual inflation, calculated using a European Union-harmonized method, slowed to 0.2 percent in December, according to the median estimate of economists in a Bloomberg survey.

Italy’s 10-year rate rose five basis points to 1.79 percent after declining to a record 1.737 percent on Jan. 2. The yield fell 14 basis points on Jan. 2 from Dec. 30, the biggest drop since June 6.

The euro weakened as much as 1.2 percent to $1.1864, the lowest level since March 2006.

Greek bonds lost 20 percent in the six months through Jan. 2, according to Bloomberg World Bond Indexes. Germany’s returned 5.8 percent and Italy’s earned 7 percent.