Greek Bonds Slump on Election Risk Fueling Gains in German Bunds

Greek government bonds fell, pushing the yield on three-year notes to the highest since they were sold in July, as Prime Minister Antonis Samaras failed in his final attempt to get his candidate for president confirmed.

Italian bonds declined and Greek stocks tumbled as the result of a vote by lawmakers paved the way for parliamentary elections in the nation that triggered Europe’s sovereign debt crisis. Under the Greek constitution, the legislature will now be dissolved, and Samaras said he will ask for voting to be held on Jan. 25. Germany’s 10-year yields fell to a record alongside those of Austria and the Netherlands as investors sought the safest fixed-income assets.

“The outcome of early elections is far from clear,” said Daniel Lenz, lead market strategist for the euro area at DZ Bank AG in Frankfurt. “A lot of this negative impact was being priced in. I doubt it will go much further than three-year yields, let’s say, at 12 percent.”

Greek three-year yields jumped 190 basis points, or 1.90 percentage point, from Dec. 23 to 12.09 percent at 5 p.m. London time and touched 12.21 percent, the most since the securities were sold via banks in July. The 3.375 percent note due in July 2017 fell 3.51, or 35.10 euros per 1,000-euro ($1,219) face amount, to 81.805. The rate on 10-year bonds climbed above 9.5 percent for the first time since September 2013, reaching 9.85 percent.

Stocks Slide

The Athens Stock Exchange Index slumped as much as 11 percent after 168 lawmakers in the 300-seat chamber backed Samaras’s nominee for president, Stavros Dimas, short of the 180 votes required.

Greek 10-year yields rose as high as 44.21 percent in 2012. The country has received two financial rescues and swapped existing securities for new 2 percent bonds maturing between 2023 and 2042 as part of the world’s biggest sovereign-debt restructuring in 2012.

Credit-default swaps insuring $10 million of Greek debt for five years were quoted at $3.65 million upfront and $500,000 annually, according to CMA. That’s up from $3.45 million in advance on Dec. 24 and signals a 64 percent probability of default.

Greek sovereign debt has trailed its euro-area counterparts. It was the only euro-area debt market to fall over the past month, losing 1.5 percent according to Bloomberg World Bond Indexes.

Italy’s 10-year yield rose four basis points to 1.98 percent. The rate on similar-maturity Spanish debt was little changed at 1.67 percent, having been as high as 1.72 percent.

Benchmark German 10-year bund yields dropped to as low as 0.541 percent, the least since Bloomberg began collecting the data in 1989. The nation’s two-year yield reached minus 0.099 percent, also an all-time low.

Austria’s 10-year yield fell to as low as 0.704 percent, Finland’s reached 0.652 percent and the equivalent Dutch rate touched 0.681 percent. French 10-year yields dropped to 0.828 percent.

Before it's here, it's on the Bloomberg Terminal.