Measures of Greek debt risk from government bonds to corporate notes surged after voters rejected bailout terms demanded by international creditors.
The government’s two-year notes fell to the lowest since they were sold via banks last July, with the sovereign yield curve indicating the highest risk of a default since the country restructured debt in 2012. Bonds sold by Greek banks and companies dropped to all-time lows as broader risk measures rose.
Greece’s creditors turned up the heat on Prime Minister Alexis Tsipras to come up with a plan to stay in the 19-nation euro zone after 61 percent of voters endorsed his call for a “no” to more austerity in Sunday’s referendum. Greece’s departure from the euro is now the most probable scenario, according to a series of banks including JPMorgan Chase & Co.
“Grexit is now more likely,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “The EU cannot improve its offer any more. In particular, I see no leeway regarding the core issue of debt relief.”
Greece’s two-year yield climbed to 54 percent as of 4:45 p.m. in London. The 3.375 percent note due in July 2017 fell to 45.60 percent of face value. That compares with a price of 99.65 when the debt was sold last year. The yield is 22 percentage points higher than the four-year securities and 36 percentage points more than 10-year bonds.
Investors usually demand higher yields on longer-dated debt, judging the risk of owning it to be greater. Greece’s so-called inverted yield curve may signal that investors are concerned they won’t get their cash back in the short term.
“This market is driven by few and highly speculative players,” which makes the moves more exaggerated, Daheim said.
Greek government bonds have lost 23 percent this year through July 3, compared with a 1.5 percent decline for the euro area overall, according to Bloomberg World Bond Indexes.
The Mediterranean nation is scheduled to sell 1.25 billion euros of Treasury bills on July 8. Next week, it is due to repay yen-denominated debt.
“There is quite a significant risk that Greece will default on its commercial creditors,” Moritz Kraemer, managing director of sovereign ratings at Standard & Poor’s, said in an interview on Bloomberg Television’s “The Pulse” with Manus Cranny.
Gauges of credit market risk rose around the world, according to data compiled by Bloomberg. The Markit iTraxx Europe index of credit-default swaps on investment-grade companies increased four basis points to 79 basis points and the Markit iTraxx Senior Financial Index increased six basis points to 98, both the highest since March 2014.
The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, jumped the most in a week, rising as much as 10.5 basis points to 359 basis points.
The onus is on Greece to act quickly to avoid a meltdown of its banking industry. Banks may run out of cash within days if not hours unless the European Central Bank extends an emergency lifeline.
The ECB, which was due to discuss the situation at 6 p.m. in Frankfurt, reckons the country’s financial system can survive until at least after Tuesday’s summit of European leaders without an injection of extra liquidity, people familiar with the matter said.
The Greek Finance Ministry said it will extend a bank holiday and capital controls through Wednesday. Euclid Tsakalotos was named finance minister to replace Yanis Varoufakis, who resigned Monday.
Eurobank Ergasias SA’s 295 million euros ($325 million) of 4.25 percent bonds due 2018 dropped more than 10 cents on the euro to be quoted at 27 cents, according to data compiled by Bloomberg. Alpha Bank AE’s 400 million euros of 3.375 percent notes due June 2017 dropped about 13 cents on the euro to 32 cents and Piraeus Bank SA’s 500 million euros of 5 percent notes maturing in March 2017 dropped about 11 cents to 29 cents, the data show.
Hellenic Telecommunications Organization SA’s 700 million euros of bonds due 2020 dropped about 5 cents on the euro to 74 cents, while Public Power Corp.’s 200 million euros of notes due 2017 declined 7 cents to 59 cents, data compiled by Bloomberg show.
“If there is no further support from the ECB, this might be the catalyst for Grexit,” Jakob Christensen, a senior economist at Exotix Partners, wrote in a note. “It will be very difficult, if not impossible, for the Greek government and Europe to find a way forward.”