Markets worried by delays in bailout review


Greek state bond yields jumped on Wednesday to levels unseen since last June, when markets took a hit from the British referendum to leave the European Union. It is no surprise international agencies are particularly cautious about Greece.

The liquidation of Greek debt paper, due to the uncertainty generated by delays in wrapping up the second bailout review, led the yield of the one-year bond to 12.07 percent on Wednesday, while the benchmark 10-year yield came to 7.65 percent. This is the same level foreign bond managers saw after Britain’s June 23, 2016, vote for Brexit.

The spread between the 10-year bond yield and that of the 10-year German bund came to 727 basis points, having stood at 628 bp at the start of 2017.

In the same context, some of the world’s biggest financial firms have issued reports warning about the risks Greece faces if it does not complete the bailout review in time.

Bank of America says that the second review will be more difficult than markets anticipate and talks may drag on “until Greece runs out of money.” The US lender continues to expect a deal before the debt repayments Greece has to make in July.

Fellow US firm Citi notes in a report that the review will close once Greece finds itself under financing pressure. It explains that the lack of an upcoming debt repayment deadline is considerably reducing pressure on all sides to reach a compromise in the near future. “There will be pressure on Greece in July for the 7-billion-euro repayment,” Citi forecasts.

Goldman Sachs warns that although this is not the first time the Greek program has suffered from delays, prolonged political tension could once again threaten the fragile recovery of the local banking sector.

As for Morgan Stanley, it estimates in a report that a breakthrough in negotiations is possible, “but it will certainly require more time and more pressure.” Morgan Stanley adds that the Greek economy is shrinking again as political uncertainty is casting a pall over the country’s prospects.