Greek Two-Year Yield Climbs to Record 100% Amid Default Concern

Greek two-year note yields climbed to more than 100 percent for the first time amid concern the nation may default on its outstanding government debt.

The yield on the 4 percent security maturing in August 2013 rose 516 basis points, or 5.16 percentage points, to 101.84 percent at 8:36 a.m. London time, the most since Bloomberg began compiling the data in 1998. The price fell 1.40, or 14.0 euros per 1,000-euro ($1,371) to 31.2 percent of face value.

Bonds issued by Europe’s most-indebted countries have fallen this year, even after European Union leaders meeting in Brussels agreed on Oct. 27 to increase a regional bailout fund to 1 trillion euros, recapitalize banks and write down Greek debt by 50 percent. Bond prices show that investors in Greek debt are betting they will receive even less than that.

“You don’t have to look at the yield, only the price,” said Alessandro Giansanti, a senior interest-rate strategist at ING Groep NV in Amsterdam. “What the market does when you have a distressed situation is look at the price -- that’s what investors think they will get in a restructuring.”

Greek Prime Minister George Papandreou pledged Oct. 31 to hold a referendum on the plans to write down the nation’s debt and the accompanying austerity measures, risking default if voters reject the deal.

Investors “expect a more-than-50-percent reduction in principal,” Giansanti said. “If the aim is to allow Greece to come back to market as soon as possible you need a bigger haircut and you need the ECB to be involved as well.”

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