Greek bond yields and CDS soaring

Greek bond yields and CDS soaring

The heavy atmosphere on the Greek bond market was severely aggravated on Tuesday not only by the German Finance Ministry’s statement in favor of the International Monetary Fund’s participation in the Greek program, but also by SYRIZA MP Nikos Xydakis’s reference to a return to the drachma.

The yield on 10-year Greek government bonds was up 41 basis points on Tuesday at a seven-week high of 8.18 percent, which later eased to 7.94 percent.

Five-year credit default swaps (CDS) – or the cost of insuring Greek government debt against default – rose 5 bps to 1,011 bps, the highest closing level since December 29, according to financial information services company Markit.

This climate has resulted in fresh pressure on local lenders, in terms of both deposits and nonperforming loans, as concerns about the economy are growing by the day, with the second bailout review still unfinished.

Credit sector sources note that a decline in deposit levels that started in mid-January has been accelerating, despite the existing capital controls. This has taken January into negative territory, while many bank customers have been questioning staff about a possible haircut on deposits if there is a bank bail-in.

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