Greece’s government bonds declined for a second day as talks between the nation and euro-area finance ministers ended abruptly and without an agreement on financial support for the nation.
The three-year yield approached its highest since 2012 as the new Greek government said it couldn’t accept “absurd” demands for it to stick to terms of its existing bailout. The risk of Greece exiting the euro, known as Grexit, was raised to 50 percent from 25 percent by Commerzbank AG after the discussions had halted when bond markets were shut on Monday. Greece’s existing bailout is due to expire on Feb. 28. German and Italian 10-year bonds were little changed.
“Given that the likelihood of a Grexit has risen significantly after Monday, I would expect Greek yields to grind higher,” said Michael Leister, a senior rates strategist at Commerzbank in Frankfurt. “The market overall doesn’t seem to have been taken too much by surprise. This strategy of isolating Greece has worked.”
Greece’s three-year yield increased 193 basis points, or 1.93 percentage point, to 19.50 percent as of 9:26 a.m. London time, after rising 174 basis points on Monday. The 3.375 percent note due July 2017 dropped 2.74, or 27.40 euros per 1,000-euro ($1,134) face amount, to 71.1. The 10-year yield added 66 basis points to 10.31 percent.
Three-year yields remained below the 21.91 percent level reached on Feb. 10, the highest since the nation’s debt was restructured in 2012.
The European Commission had offered a path forward that finance ministers then refused to put on the table, according to Greek Finance Minister Yanis Varoufakis. Instead, Dutch Finance Minister Jeroen Dijsselbloem offered a different draft statement tying Greece to its current agreement, which Varoufakis rejected out of hand.
The German 10-year bund yield was little changed at 0.34 percent. The yield dropped to a record 0.297 percent on Feb. 2.
The yield on similar-maturity Italian bonds was at 1.66 percent.
A system error delayed the opening of derivatives markets at Eurex on Tuesday, it said in a statement on its website. That’s the bourse where German bund futures are traded.