ECONOMY

Greek markets plunge as SYRIZA digs in on challenge to austerity

Greece’s government bonds and stock market plunged in the week after the election of Syriza, the political party whose vow to renegotiate debt obligations and roll back austerity measures has sparked an investor flight.

Italian and Spanish sovereign securities fell for the first time in three weeks amid concern the European Central Bank’s quantitative-easing plan won’t fully insulate the rest of the region’s debt markets from Greece’s turmoil. The yields on German bunds dropped to record lows as investors sought the safest assets. Barclays Plc analysts said the likelihood of a Greek exit from the euro area is higher under the rule of new Prime Minister Alexis Tsipras than in 2012.

“It has been a case of rapid swings of the pendulum between markets that do not really want to believe that ‘Grexit’ is now a higher-probability event than it was in 2012, and on the other hand the combative and seemingly uncompromising rhetoric from Tsipras and Varoufakis, and German officialdom,” said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. He was referring to Greece’s Finance Minister Yanis Varoufakis.

Greek 10-year yields rose 276 basis points, or 2.76 percentage points, to 11.17 percent as of 4:55 p.m. London time Friday, the biggest weekly increase since May 2012. The 2 percent security due in February 2025 fell 12.65, or 126.50 euros per 1,000-euro ($1,129) face amount, to 54.465.

Notes Plunge

The rate on Greece’s three-year notes increased 907 basis points to 19.15 percent and touched 19.26 percent, the highest level since the nation restructured its debt in 2012. The three- year note’s yield premium of about 8 percentage points more than the 10-year bonds may reflect investors’ concern they won’t get paid back in full.

We’ve seen “rapid and heavy inversion of the Greek yield curve on Grexit/default fears in extraordinarily thin trading volumes,” Ostwald said.

Greek equities also tumbled. The ASE Index had its worst week in more than a month, losing 14 percent as banks dragged it lower. A gauge tracking the nation’s lenders plunged 38 percent, the most since May 2013, to a record on Jan. 28.

Securities backed by Greece delivered the worst returns among sovereign debt tracked by Bloomberg’s World Bond Indexes this year through Thursday amid concern the new government will plunge the nation into financial turmoil again. The debt lost 2.3 percent, set for a fifth consecutive monthly decline, while Germany’s returned 1.8 percent and Spain’s earned 1.5 percent.

Greece’s officials will not co-operate with its so-called troika of creditors, Varoufakis said after meeting with Jeroen Dijsselbloem, chair of the euro region’s group of finance ministers, in Athens Friday. He said the nation won’t seek an extension of its bailout agreement, setting the government on course to enter March without a financial backstop for the first time in five years.

Italian Rate

Italy’s 10-year rate increased seven basis points in the week to 1.59 percent, while Spain’s rose five basis points to 1.42 percent.

The yield on Germany’s 10-year bunds dropped as low as 0.298 percent on Friday, the least since Bloomberg began collecting the data in 1989. The nation’s two- and 30-year rates also touched record lows.

Greece is scheduled to sell 625 million euros of six-month bills on Feb. 4. The nation has 947 million euros of bills maturing on Feb. 6 and a further 1.4 billion euros due to be redeemed the following week, according to data compiled by Bloomberg. France, Spain and Finland are due to sell bonds next week.

[Bloomberg]