Premium balloons to record high

The premium investors’ demand to buy Greek rather than German government debt ballooned yesterday to its highest point since Greece adopted the euro as debt-crisis talks with the European Central Bank, European Commission and International Monetary Fund were pushed back a few days. The delay in planned talks in Athens over a possible 45-billion-euro loan bailout package unsettled investors keen to see Greece activate the rescue deal. «The skyrocketing Greek government risk premium makes a request for IMF funds inevitable but investors will not take comfort until a credible growth plan for Greece is agreed,» Lena Komileva, head of G7 market economics at Tullett Prebon in London, told Reuters. The Greek/German 10-year government bond yield spread hit a euro lifetime high of 474 basis points, around 31 bps wider than Friday’s settlement and surpassing previous highs set in early April. Five-year credit default swaps (CDS) on Greek government debt rose to 462.4 basis points versus 438.2 on Friday. The EU-IMF talks, originally scheduled to begin yesterday, were delayed due to the volcanic ash cloud from Iceland affecting air travel in Europe. The talks are now expected to begin tomorrow but could also be held via teleconference if air travel problems persist. Meanwhile, the government tried to play down talk that the rescue plan implies bankruptcy after a recent opinion poll showed that half of those surveyed were angry with the decision to start preparatory discussions. «Activation of the European support mechanism, when and, of course, if that happens, does not mean bankruptcy,» said government spokesman Giorgos Petalotis. «This mechanism was created… to avoid adverse borrowing conditions. If such a mechanism had not been created, the chances of bankruptcy would have been very high.» Meanwhile, the next funding test for Greece is an auction of 1.5 billion euros of 13-week T-bills scheduled for today. Analysts said the debt should find buyers thanks to the short duration and the option of the aid package.

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