Greek Pressure Builds as Bond Yields Climb to Highest Since 2012

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Is Schaeuble Leaving Greece to Dangle in the Wind?

Greece’s bonds tumbled, pushing 10-year yields to the highest in more than two years, as pressure mounted on the southern European nation to secure funding or risk a possible default.

The price of Greece’s three-year notes dropped the most since February and Greek corporate bonds also slumped. Credit-default swaps suggested there was a 79 percent chance of the country being unable to repay its debt in five years.

Greece’s government, which came to power in January, is facing a financing crunch that Germany’s Finance Minister says isn’t likely to be resolved before a meeting of euro-area lawmakers next week. Officials from the country told their creditors earlier this month they might run out of money and could miss a repayment to the International Monetary Fund, said three people familiar with the negotiations. Funds may be exhausted by May 12, when money is owed to the IMF, Standard & Poor’s said on Wednesday, as it downgraded Greek debt.

“It will be hard to get an agreement reached by April 24 as hoped for by the Greek government,” said Vincent Chaigneau, head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “That can carry on for a few more weeks. The road is narrow.”

Debts Due

At stake is the country’s 313 billion euros ($336 billion) of government debt. In the first two weeks of May, Greece must make payments to the IMF of 200 million euros and almost 800 million euros. It’s due to pay almost 200 million euros of interest on privately held bonds on Friday.

The nation’s 10-year yields rose as high as 13.20 percent, the most since December 2012 and were at 12.69 percent at 3:10 p.m. London time.

They’re still well below the 44.21 percent reached during the debt crisis in 2012. Since then, the euro area has established firewalls to contain financial woes in one nation. While Italy’s 10-year yield climbed as high as 1.37 percent on Thursday, it stayed within 35 basis points of a record low set on March 12 and is down from almost 7.5 percent in 2011.

The risk of European banks facing losses on Greece has also diminished, according to CreditSights Inc.

“European banks have exited their Greek operations and wound down their Greek sovereign bond holdings to almost zero, so we do not see any imminent risk of direct losses,” analysts including London-based Simon Adamson wrote in a note dated Wednesday.

Greek Yields

Yields on Greece’s notes due July 2017 surged 281 basis points, or 2.81 percentage points, to 26.89 percent. They earlier reached 28.23 percent, the most since March 2012, when Greek bonds underwent the biggest restructuring in history. The 3.375 percent security fell 3.11, or 31.10 euros per 1,000-euro face amount to 63.76.

Trading in Greek bonds is thin. There was no turnover of Greek government bonds through the central bank’s electronic secondary securities market, or HDAT, on Wednesday, ANA reported.

The Financial Times reported earlier on Thursday that a Greek request to delay repayment of loans to the IMF had been rejected.

Greek Finance Minister Yanis Varoufakis never asked to be informed about the process of missing a payment to the fund, he said by e-mail.

S&P downgraded Greek debt to CCC+ from B- on Wednesday, citing the deteriorating economic outlook.

Economic Reforms

German Finance Minister Wolfgang Schaeuble criticized Greece for backsliding on reforms Wednesday, saying “no one” expects a resolution next week of the standoff with Greek Prime Minister Alexis Tsipras’s government over untapped bailout funds.

“It’s entirely down to Greece,” Schaeuble said in a Bloomberg Television interview. While some kind of restructuring might be on the agenda in 10 years, “today the issue for Greece is reforming its economy in such a way that it becomes competitive at some point.”

Credit-default swaps show the chance of Greece being unable to repay its debt in five years has risen from 67 percent at the start of last month, according to CMA.

Greek corporate bonds fell to records. Eurobank Ergasias SA’s 4.25 percent notes due June 2018 dropped 3 cents on the euro to 56.45 cents, according to data compiled by Bloomberg.

Some Greek bondholders have kept faith. Hans Humes, founder of Greylock Capital Management fund, said Tuesday the $870 million fund still holds the bonds, but has reduced its investment from a month ago because of increased risk of failure in the negotiations.

Paul Kazarian, the founder of Japonica Partners & Co., which bought securities in 2012 and 2013, said in March that his firm hadn’t “sold anything and we’re not planning to.”

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