Greek Two-Year Bond Yield Crosses 10% Amid Creditor Dispute

  • Bonds continue to tumble as nation’s talks remain deadlocked
  • Schaeuble, Dijsselbloem have ramped up hard-line rhetric

Citigroup's Buiter Labels Greece a 'Chronic Mess'

The selloff in Greek bonds amid the nation’s dispute with its creditors passed another milestone, with the yield on its two-year notes rising above 10 percent.

The notes fell for a third time this week as squabbles between Greece, euro-area creditors and the International Monetary Fund about debt sustainability stalled negotiations aimed at completing the second review of an 86 billion-euro ($92 billion) bailout program. While euro-area finance ministry officials are set to discuss Greece when they meet in Brussels later on Thursday, an immediate breakthrough seemed unlikely.

The impasse is the latest in a saga that has buffeted the nation’s securities since the euro-region’s debt crisis that began in Greece in 2009. Flare-ups in its debt talks have previously shown the potential to spill over into other European markets, increasing the focus on Greek bonds even though they trade with thin volumes and tend to have a niche investor base. The difference between bid and ask yields on the 2019 notes, a measure of market liquidity, is about 50 basis points, compared with 0.4 basis point for benchmark German 10-year debt.

The volatility “has no reason to decline until we get an agreement on the ongoing program review,” said Frederik Ducrozet, a senior economist at Banque Pictet & Cie SA in Geneva. “The recent rhetoric suggests it may take time.”

The yield on notes due in April 2019 rose as much as 70 basis points to 10.06 percent as of 2:41 p.m. in Athens, crossing 10 percent for the first time since September. The bond was sold in 2014, marking Greece’s return from market exile. An index of local stocks slid more than 1 percent, set for the lowest close since November.

A Q&A explainer on Greece’s current turmoil

The increase in yields has coincided with a step-up in hard-line rhetoric from euro area lawmakers this week. German Finance Minister Wolfgang Schaeuble told broadcaster ARD on Wednesday that Greece would need to leave the euro area if it wants to get its debt restructured, while Dutch finance minister Jeroen Dijsselbloem said that the Netherlands won’t maintain participation in a bailout if the International Monetary Fund withdraws its support.

Despite the increase in yields, there are no signs of panic that the nation will be unable to meet its obligations. The bond maturing in July 2017 was trading at 95.6 cents on the euro, compared with just 42.78 percent two year ago, when failed negotiations with creditors led to a referendum that threatened Greece’s position in the euro area. The yield on the benchmark 10-year bonds rose a milder 11 basis points to 7.84 percent.

— With assistance by Adrian Krajewski, and Marcus Bensasson

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