Greek bond yields edged higher on Monday as investors reacted to fruitless debt relief talks between euro zone finance ministers on Friday which only served to highlight the gulf between Athens and its creditors.
As the country looks set to run out of cash in the coming weeks, the talks showed how isolated Greece’s finance minister was from his peers, with paymaster Germany hinting that it was already making preparations for a possible default.
The hardening of the mood against Yanis Varoufakis, which sparked media speculation that he may be sidelined by his own government, came ahead of a telephone call between German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras on Sunday.
Greek 10-year yields rose 17 basis points to 12.86 percent.
Yields on other lower-rated debt also rose, with Portugal’s 10-year yields up 1 bps at 2 percent, and Italy and Spain’s up 2 bps at 1.44 and 1.41 percent, respectively.
“The Greek news flow will continue to dominate the coming sessions,» said RBS strategist Marco Brancolini.
“The periphery will continue to be choppy until this is finished.”
The tense atmosphere saw investors take refuge in top-rated German Bunds, reversing part of the biggest weekly rise in yields of 2015 last week.
German 10-year yields fell 1 bps to 0.14 percent, having hit a two-week high of 0.18 percent on Friday.
“The Greek event risks are still prominent – we would argue that Bund yields should actually be higher over the long term if Greece was to exit, as the resultant euro zone would have less economic variance between member states – but in the near term the uncertainty should still keep demand for the «risk-free rate» (Bunds) in place,» said Mizuho strategist Peter Chatwell.
Analysts said large bond coupon and redemption payments this week, which are four times bigger than new supply, should keep a cap on yield rises in debt outside of Greece.
The U.S. Federal Reserve policy meeting on Wednesday is also not expected to exert too much upward pressure on Bund yields, with policymakers expected to strike a fairly dovish tone based on a recent bout of lacklustre economic data.
DZ Bank strategists pointed to weak U.S. durable goods data on Friday as increasing the likelihood of soft Q1 GDP data due on Wednesday.