Greek Bond Yields Surge Amid Stalled Bailout Review, IMF Quarrel

  • Yields on two-year notes rise to highest since the end of June
  • IMF demands more debt relief than what euro area has offered

Greek government bonds fell for a fourth consecutive day, with the continuing decline raising the specter that some investors may be discounting the risk of a default.

Yields on the nation’s two- and 10-year notes surged to multi-month highs as the government showed no signs of moving closer to an agreement with its creditors for the disbursement of the next bailout tranche.

Greek assets have been roiled since Thursday after a meeting between Finance Minister Euclid Tsakalotos and the nation’s bailout auditors ended in disagreement last week. The nation, which had been on the verge of leaving the euro, has required three bailouts since 2010 and the European Central Bank’s support to avoid a collapse of its financial system.

“The move in the two-year bonds goes beyond pricing a miss in the inclusion in the QE program,” said Thanassis Drogossis, an analyst at Athens-based Pantelakis Securities. “The markets are starting to discount an increasing risk of default if the second review doesn’t conclude soon.”

Yields on the nation’s 2019 notes rose 70 basis points to 9.35 percent as of 1:12 p.m in Athens, the highest since June 27. The notes were sold in April 2014 during Greece’s brief return from market exile.

On top of the debt-relief disagreements, Greece and its creditors are at loggerheads over the terms attached to its latest support program, including energy-sector overhauls and income-tax benefits. A compromise proposal submitted last week by Finance Minister Tsakalotos was rejected as insufficient by creditors.

Bailout auditors are consulting among themselves to decide their next steps, a person familiar with the matter said, asking not to be named, as the discussions are private. A Greek official said that next steps must be decided by the end of this week to allow enough time for an agreement before the next meeting of euro area finance ministers on Feb. 20.

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