‘Market strategy of isolating Greece worked,’ says Commerzbank strategist

Greece’s bonds fell after talks between its newly elected government and euro-area finance ministers broke down without agreement on how to fund the nation when its bailout expires on February 28.

Commerzbank AG raised its estimate on the chances of Greece exiting the euro to 50 percent from 25 percent after the government said it couldn’t accept “absurd” demands for it to stick to terms of its existing bailout.

Even so, Greek bonds pared declines and three-year yields stayed below rates reached last week.

“Given that the likelihood of a Grexit has risen significantly after yesterday, 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 97 basis points, or 0.97 percentage point, to 18.55 percent, after rising as much as 258 basis points. The 10-year yield added 59 basis points to 10.24 percent.