Risk on Greek debt keeps rising

Greek bondsfell to a fresh record low yesterday, reflecting plummeting investor confidence in the country managing its fiscal woes, after the Finance Ministry denied press reports that it was about to sell a chunk of government debt to China. The ministry denied a report published in the UK’s Financial Times saying that the government had chosen investment bank Goldman Sachs to sell up to 25 billion euros of Greek bonds to China but reiterated plans for an investor roadshow in Asia. Greek government bond prices tumbled in response to the denial. Traders have been hoping that a major deal with China could help to get Athens through its worst finicial crisis in decades as some 20 billion euros of Greek sovereign bonds come due in April and May. «There is no explicit or implicit agreement of the Greek government regarding the purchase of Greek bonds or Greek assets by investment funds in China or elsewhere,» the Finance Ministry said in a statement. «There is no mandate to an investment bank to negotiate in this direction on behalf of the Greek government.» The spread of the 10-year Greek bond yield over German Bunds, a measure of the risk investors see in holding Greek debt, ballooned 50 basis points to 361 bps – its highest level since Greece adopted the euro currency in 2001. Goldman Sachs declined to comment on whether it was targeting Chinese investors with Greek debt. A source familiar with the situation said that while Goldman was keen to do further business with Greece, there was no project under way to place debt specifically with Chinese investors. The cost of insuring Greece’s sovereign debt against default also rose to 350,500 euros per 10 million euros of exposure, edging close to an intra-day peak around 358,000 euros set on January 21, according to five-year credit default swap prices from CMA Datavision. The cost was up from 324,800 euros at the New York close on Tuesday. Spain may pose bigger threat to eurozone New York University professor Nouriel Roubini said he’s never been more pessimistic about the future of the European monetary union, saying Spain poses a looming threat to the euro region holding together. «Down the line, not this year or two years from now, we could have a breakup of the monetary union,» Roubini told Bloomberg. «It’s a rising risk.» Economies including Spain and Greece are threatened by fiscal imbalances and declining competitiveness, Roubini said. Membership in the eurozone means they can no longer devalue the currency to export their way out of recession, he added. Roubini said that for all the focus on Greece, Spain may eventually pose a bigger threat to the eurozone because it’s the region’s fourth-largest economy and has higher unemployment and weaker banks. Spain’s jobless rate is more than 19 percent, almost twice the EU average. «If Greece goes under, that’s a problem for the eurozone,» he said. «If Spain goes under, it’s a disaster.» Bankruptcy talk rejected As Greek bonds continued to take a beating yesterday, Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said there is no risk of the Greek state going bankrupt. «The risk of a bankruptcy in Greece doesn’t exist,» Juncker said at an event in Luxembourg yesterday. «It’s a hypothesis I totally exclude. Greece must know and does know that it has to make very serious consolidation efforts of its public finances, which it is doing,» he said. «I object to two eventualities that won’t happen: a state bankruptcy of Greece and an exit from the eurozone [that is] based on an absurd theory,» Juncker said. Meanwhile, billionaire investor George Soros said in Davos, Switzerland, that while Greece’s fiscal crisis is highlighting weaknesses in the euro region’s political structure, there is a «strong force» holding the bloc together.

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.