Greek bonds declined as a government official said Prime Minister Alexis Tsipras was set to propose snap elections.
Italian bonds also fell. Tsipras, who was elected in January on an anti-austerity platform, approved sweeping economic reforms attached to an international bailout at the cost of seeing his own party split. He’ll ask for elections to be held Sept. 20, according to a Greek government official who asked not to be named because there’s been no announcement.
“Greek news plus weak sentiment on a Thursday afternoon sees a selloff into the close,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. While the election “had been somewhat expected,” there was a “small possibility that Tsipras would manage to get through a vote of confidence but, alas, not to be,” he said.
Greece’s two-year note yield rose 132 basis points, or 1.32 percentage point, to 12.79 percent as of the 5 p.m. London close. The 3.375 percent security due in July 2017 fell 1.845, or 18.45 euros per 1,000-euro ($1,120) face amount, to 84.965.
Greek 10-year bond yields added 21 basis points to 9.56 percent, while those on similar-maturity Italian bonds rose two basis points to 1.82 percent.
Spain’s 10-year bond yield was little changed at 1.99 percent, after earlier falling as much as six basis points to 1.93 percent.
Spanish bonds climbed earlier after the nation auctioned 3.5 billion euros of debt Thursday, which saw demand rise and included the current 10-year securities. The nation also sold notes due in 2018 and 2024.
Yields on Greek bonds are still below levels reached in previous periods of upheaval. The two-year yield climbed above 63 percent last month amid concern a stand-off between the nation and its creditors would push it out of the euro. The yield exceeded 200 percent before Greece’s debt was restructured in 2012.
“The earlier widening of peripheral spreads is gathering some additional steam” after the news from Greece, strategists at Rabobank International, led by London-based head of European rates strategy Richard McGuire, wrote in an e-mailed note.
The moves were “warranted” on concern Greece’s reform program “will be put on the back-burner as the electoral campaign kicks off,” they wrote.
German 10-year government bunds, Europe’s benchmark sovereign debt, rose after minutes of the Federal Reserve’s July meeting published Wednesday prompted investors to push back their outlook for interest-rate increases.
“A Fed rate hike in September has become much less likely,” said Felix Herrmann, a market analyst at DZ Bank AG in Frankfurt. “Markets were positioned for a more hawkish tone.” Arguments in favor of higher yields “have more or less disappeared, so the market seems to be quite bullish on bonds,” he said.
German 10-year bund yields fell four basis points to 0.58 percent. They earlier reached 0.57 percent, the lowest since June 2.