Greek Debt Negotiation Stress Lift Bond Yields

Nigel Thomas
27 Jan, 2015
New York City

Bonds in the euro zone were in focus again after investors worried that Greek leaders may push for debt write-off opposed by European leaders.

Bonds in the euro zone were in focus again after investors worried that Greek leaders may push for debt write-off opposed by European leaders.

At least for now finance ministers of 19-nation euro zone on Monday showed willingness to work with the newly elected Greek leader on one condition that the Greece will not seek to renege on the promise of debt repayment.

However, the appointment of Greek finance ministers raised tempers across the euro zone. Lawmaker Yanis Varoufakis will lead Greek delegation in negotiating with the euro-area finance ministers and troika of international lenders.

Varoufakis has opposed the Greek austerity measures and the international bailout of 240 billion euros since 2010 and has consistently advocated debt default.

Bond market is feeling the upcoming Greek negotiation stress and the yield of 3-year bond rose 195 basis points to 14.01% and yield of 10-year bond rose 35 basis points to 9.48%.

The ASE Index in Athens declined 4.4% led by double-digits plunge in banking stocks.

National Bank of Greece SA, Alpha Bank AE and Eurobank Ergasias SA dropped more than 11%.

Yields were unchanged for 10-year German bund at 0.39% after falling to a record low of 0.336% at close on Monday.

Italy sold 2 billion euros of zero-coupon notes maturing in August 2016 at a record low yield of 0.281%. Treasury office in Rome also sold inflation-linked debt maturing in 2018 and 2041.

The Netherlands also sold long term debt maturing between two and thirty years at yields that are sharply lower than in the previous auction on November 11.

Dutch government raised 1.15 billion euros of bonds due in 2047 at a record low yield of 1.15% compared to 1.815% in the previous auction.

The euro edged up 0.5% to 74.86 U.K. pence after the country’s gross domestic product increased 0.5% in the December quarter.

Swiss franc declined 0.3% to 1.0179 to a euro after a Swiss National Bank policy maker suggested that the central bank is prepared to intervene in the market to defend the policy guideline.