Greek Debt Crisis Rejected by Europe’s Yield-Starved Bond Buyers

ECB Decides on Greek Emergency Funding This Week

European bond markets are showing real signs of Greek debt-crisis fatigue.

Many investors frankly seem to be so exhausted by the debate about whether Greece will leave the euro zone that they’re now dismissing the possibility altogether.

How else can you explain why corporate-debt yields in countries like Portugal, Spain and Italy are so incredibly low, even as Greece fails to secure an agreement just days before the European Central Bank’s next decision on emergency aid?

“In credit, we think peripheral valuations are priced to perfection,” meaning that yields don’t reflect much of the downside risks, Bank of America Corp. analysts Barnaby Martin, Ioannis Angelakis and Souheir Asba wrote in a May 1 report. The debt has “a limited cushion should the Greek situation turn sour.’

Company bonds on the outskirts of the European Union offer almost the same extra yield over benchmarks as similar notes in core nations such as Germany, France and Belgium, according to Bank of America data. And yet this debt is more vulnerable in a market rout because European central bankers aren’t buying corporate debt as part of their stimulus program.

Just how perfectly are these notes priced?

Spanish Yields

Well, as an example, investors are accepting a mere 0.2 percent yield to lend to big Spanish companies with top ratings for up to three years, according to Bank of America Merrill Lynch index data. Back in 2012, that yield was as high as 6.7 percent. Now it’s just 0.2 percentage point more than that on similar-maturity debt in Germany.

On one hand, that doesn’t make much sense given how tense everything has gotten between Greece’s anti-austerity leader Alexis Tsipras and European officials. The chances of the situation deteriorating are significant. The two sides remain far apart on issues ranging from fiscal forecasts to labor and pension reforms, people familiar with the talks have said.

While the rest of Europe, especially the banks, has scaled back its exposure to Greece over the past few years, it’s hard to imagine that there’d be no fallout at all in the region if the country were to leave the euro.

So if developments suddenly were to point to that exit, it’d likely prod investors out of their complacency and drive them to classic safe-haven investments such as German government debt.

Solid Wager

Nations such as Portugal, Italy and Spain are perceived as having some of the more fragile economies in Europe, and would suffer more in that situation. Without a direct backstop from central bankers and their quantitative easing program, it’s easy to see how this debt will lose out.

On the other hand, it’s been a pretty solid wager to close your eyes to the Greek noise and buy the riskiest European stuff you can find. Greek sovereign debt, for example, has gained 10.5 percent since the end of March.

So why worry now?

‘‘Markets have thus far shrugged their shoulders when it has come to Greece,” the Bank of America analysts wrote. “In credit land, we think the Greece saga could be a bit more of a pain.”

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