Pricing in Greece’s bonds will be volatile and the market will be illiquid until the nation’s four-day old government reaches agreement with international creditors over its debt, according to Pacific Investment Management Co.
Prime Minister Alexis Tsipras is seeking a new accord, having said previously that Greece should give investors a “significant haircut” on the amount they were promised. That suggestion was met with skepticism by officials across the rest of Europe. It also helped Greek three-year note yields this week swing in a range of about 900 basis points, or 9 percentage points, the most since the Mediterranean nation restructured its debt in March 2012.
“Most of us, ourselves included, think there will be a resolution,” said Mike Amey, a money manager at Pacific Investment Management Co., which runs the world’s biggest actively run bond fund. “At the moment what you’ve got is words going in that direction, but unfortunately the actions so far don’t back it up. Until we can see words and actions going in the same direction that market will remain illiquid and volatile.”
Greece’s three-year note yielded 17.26 percent at 12:50 p.m. London time, up from 10.08 percent on Jan. 23. The 3.375 percent security due in July 2017 fell 11.98, or 119.80 euros per 1,000-euro ($1,136) face amount, to 73.945 in the period. The 10-year rate jumped 168 basis points to 10.08 percent.
The difference between the bid and offer yields for Greek 10-year government debt, a measure of the bonds’ liquidity, was about 30 basis points on Friday, according to data compiled by Bloomberg. In contrast, the spread on similar-maturity German bunds, the euro region’s benchmark securities, was 0.2 basis point.
“The vast majority of the debt is held by official institutions, and to get a liquid market you have to get a clearing price at which both buyer and seller are willing to trade,” Amey said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “If you own some of this stuff you won’t be in a mad rush to sell it, having just seen it sell off pretty aggressively.”
Greece’s public and central-bank creditors own more than 80 percent of its sovereign debt, according to data compiled by Bloomberg. The new Greek leaders “want to sit down and rethink the whole program,” Finance Minister Yanis Varoufakis said in an interview with the New York Times published late on Thursday.