ECONOMY

Greek bonds slip on Syriza victory as ECB buying mutes contagion

Greece’s government bonds fell after Syriza, a party committed to renegotiating the country’s debt obligations, triumphed in a general election.

Spanish and Italian bonds erased earlier declines as the European Central Bank’s newly announced bond-buying plan may shield those nations’ securities from a selloff, analysts said. Syriza has said it plans to win a writedown of Greek public debt without asking private bondholders to take losses. Its opposition to economic reforms demanded by creditors risks an exit from the euro, according to Antonis Samaras, the outgoing premier.

“The uncertainty surrounding Greece’s future in the euro is unlikely to go away in a hurry,” said Lena Komileva, London- based chief economist at G Plus Economics Ltd., whose clients include central banks, said before the final election results on Jan. 25. “It will be a bumpy ride for euro-zone high-yield bonds. ECB funds may insulate other euro governments from liquidity shocks.”

Greek three-year yields rose 76 basis points, or 0.76 percentage point, to 10.84 percent at 8:54 a.m. London time. The rate tumbled more than one percentage point in the previous three days as the ECB outlined a program of sovereign-debt purchases, while saying Greece wouldn’t immediately be included in the plan. The 3.375 percent note due in July 2017 fell 1.405, or 14.05 euros per 1,000-euro ($1,123) face amount, to 84.52.

The nation’s 10-year rate increased 40 basis points to 8.81 percent, halting a three-day drop.

Decisive Victory

While Syriza’s victory was more decisive than polls had predicted, the results after 99.8 percent of the vote left the party just short of a majority, with 149 seats in the 300-seat Parliament. Samaras’s New Democracy, which took 27.8 percent to Syriza’s 36.3 percent, won 76 seats. The far-right Golden Dawn placed third with 6.3 percent, followed by To Potami with 6.1 percent.

Tsipras has said he will negotiate on Greek debt and abandon budget constraints that were imposed in return for aid, while keeping Greece within the single currency area.

Greek bonds delivered the worst returns among sovereign securities tracked by Bloomberg’s World Bond Indexes in the six months through Jan. 23. Greece’s debt lost 12 percent, while Germany’s returned 6.4 percent and Spain’s earned 8.1 percent.

Contagion Insulated

The bonds of Europe’s higher-yielding nations may be insulated from contagion risk by the ECB’s quantitative easing plan, said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. The central bank said on Jan. 22 it will buy 60 billion euros a month of public and private debt until September 2016 to revive inflation, sparking a surge in bonds that sent yields from Germany to Spain to record lows.

“I don’t see the risk of a general trend-break for the periphery yet, given that we still have QE and this is the dominating effect,” Lenz said on Jan. 25. “I very much doubt that Spain and Italy will see a negative trend lasting for weeks and months.”

German 10-year yields were little changed at 0.36 percent after falling to 0.337 percent, the least since Bloomberg began collecting the data in 1989. Spain’s 10-year rate fell one basis point to 1.36 percent after climbing as much as five basis points. Italy’s was one basis point lower at 1.51 percent after rising to 1.57 percent.

[Bloomberg]