Markets Pound Greek Bonds

Greece can no longer attribute some of the country’s severe economic problems and high levels of borrowing to financial speculators.

Prevailing uncertainty over its ability to fund itself (Greece is the European Union’s most indebted member), prompted markets on Thursday to drive Greece’s borrowing costs to new highs, pushing Athens closer to tapping the emergency lending facility agreed by the EU and the IMF.

The Greek yield spread over German bunds spiked to as much as 463 bps on Thursday — its largest gap in record of the euro currency bloc — as investors demanded a yield of 7.26% for a 10-year Greek bond, compared with a 3.10% yield on German bunds. Two-year Greek gov’t bond yield spread widened to more than 100 bps to almost 8%.

Reuters: “Spread levels today are insane, they are not levels for a euro zone country,” said Panagiotis Dimitropoulos, treasurer at Millennium Bank in Greece. “It seems Greece is being pushed toward the aid mechanism.”

At this point it would be very surprising if Greece is able to lock in a 7.50% or even 8% yield on its subsequent offerings since the yield spread over the bund is likely to go higher. Having said that, how can a country function if it has to fund near-term maturities in the 7%-8% range?!!

“Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what [Greece) intends to do, when [it] intends to do it and how much would be involved,” Chris Pryce, senior Greece analyst for rating agency Fitch told Reuters.

“It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support.”

The yield spread over the bund added pressure to the euro. It slipped 0.2% to $1.3306 during trading just off its 2010 low of $1.3267. But, as the session progressed euro was able to work its way back from the 2010 lows sub-1.33 to hang near 1.3340.

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