- Yield spread widens between securities due in 2017, 2026
- EU President Donald Tusk urges ministers' meeting instead
Greek government bonds tumbled, pushing the yield on shorter-dated notes up by the most in more than three weeks, after the nation failed to resolve disagreements with creditors, prompting Prime Minister Alexis Tsipras to seek a euro-area leaders’ summit. Stocks fell.
Investors are demanding an extra 274 basis points of yield to hold 2017 securities instead of those due in 10 years. The widening gap signals that investors may be more worried about getting repaid in the short term rather than the possibility of inflation eroding returns on debt with longer maturity dates. The Athens Stock Exchange General Index declined the most in more than a month.
The prime minister’s move threatens a repeat of last year’s drama, when a quarrel over bailout terms almost pushed Greece out of the currency bloc. It came a few hours after euro-area finance ministers canceled plans to hold an extraordinary meeting this week, which would have paved the way for a disbursement of the next tranche of emergency loans to Greece.
European Union President Donald Tusk told reporters in Brussels that “there is still more work to be done by the ministers of finance,” while German Finance Minister Wolfgang Schaeuble said in Berlin he doesn’t see a need right now for leaders to meet.
There’s no sign of panic spreading to other bond markets in the region, which were mostly higher on Wednesday. Since the European Central Bank started with its various stimulus measures, including bond purchases, bouts of instability in Greece have lost their potency. Spanish securities advanced Wednesday even as the country headed for another election, after parliament failed to choose a prime minister since a December election.
‘Too Much Optimism’
“We had seen a lot of spread-tightening last week because investors were optimistic that there would be a breakthrough,” said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. “The market setting off in the opposite direction shows there was too much optimism.”
The yield on Greek notes due in July 2017 rose 132 basis points, or 1.32 percentage point, to 11.66 percent as of 3:45 p.m. London time, the biggest jump since April 4. The 3.375 security fell 1.235, or 12.35 euros per 1,000-euro ($1,133) face amount, to 91.125. Ten-year bond yields increased 32 basis points to 8.92 percent.
Yields on benchmark German 10-year bunds, perceived to be among the safest in the region, fell one basis point to 0.29 percent, while those on similar-maturity Spanish debt declined two basis points to 1.62 percent.
Banks led equity declines with Eurobank Ergasias SA, Piraeus Bank SA and National Bank of Greece dropping at least 7 percent. The ASE Greek equity benchmark fell 2.5 percent on Wednesday. It was among the worst performing indexes in the world last year, tumbling 31 percent in dollar terms. It’s down almost 5 percent in dollar terms this year.