Measures of Greek debt risk from government bonds to corporate notes surged after voters rejected bailout terms demanded by international creditors.
The government’s two-year notes fell to the lowest since the securities were sold via banks last July, with the sovereign yield curve indicating the highest risk of a default since the country restructured its debt in 2012. Bonds sold by Greek banks and companies dropped to all-time lows, while broader risk measures rose across Europe.
Greece’s creditors turned up the heat on Prime Minister Alexis Tsipras to come up with a plan to stay in the 19-nation euro zone after 61 percent of voters endorsed his call for a “no” to more austerity in Sunday’s referendum. Greece’s departure from the euro is now the most likely scenario, according to a series of banks including JPMorgan Chase & Co.
“Grexit is now more likely,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “The EU cannot improve its offer any more. In particular, I see no leeway regarding the core issue of debt relief.”
Greece’s two-year yield climbed to 54 percent as of 1:15 p.m. in London. The 3.375 percent note due in July 2017 fell to 45.60 percent of face value. That compares with a price of 99.65 when the debt was sold last year. The yield is 22 percentage points higher than the four-year securities and 36 percentage points more than that on 10-year bonds.
Investors usually demand higher yields on longer-dated debt, judging the risk of owning it to be greater. Greece’s so- called inverted yield curve may signal that investors are concerned they won’t get their cash back in the short term.
“This market is driven by few and highly speculative players,” which makes the moves more exaggerated, Daheim said.
Greek government bonds have lost 23 percent this year through July 3, compared with a 1.5 percent decline for the euro area overall, according to Bloomberg World Bond Indexes.
The Mediterranean nation is scheduled to sell 1.25 billion euros of Treasury bills on July 8. Next week, it is due to repay yen-denominated debt.
“There is quite a significant risk that Greece will default on its commercial creditors,” Moritz Kraemer, managing director of sovereign ratings at Standard & Poor’s, said in an interview on Bloomberg Television’s “The Pulse” with Manus Cranny. “The first opportunity would be a yen-denominated samurai bond which is coming due next week.”
Gauges of risk across Europe’s credit markets rose, according to data compiled by Bloomberg. The Markit iTraxx Europe index of credit-default swaps on investment-grade companies increased four basis points to 79 basis points and the Markit iTraxx Senior Financial Index increased six basis points to 98, both the highest since March 2014.
The onus is on Greece to act quickly to avoid a meltdown of its banking industry. A week of capital controls is set to be extended, while machines that have money to dispense are running short of notes and pensions are rationed. The European Central Bank meets Monday to discuss extending a new lifeline to Greek lenders.
Eurobank Ergasias SA’s 295 million euros ($325 million) of bonds due 2018 dropped more than 10 cents on the euro to be quoted at 28 cents, according to data compiled by Bloomberg. Alpha Bank’s 400 million euros of 3.375 percent notes due June 2017 dropped about 13 cents on the euro to 32 cents and Piraeus Bank’s 500 million euros of 5 percent notes maturing in March 2017 dropped about 11 cents to 29 cents, the data show.
Hellenic Telecommunications Organization SA’s 700 million euros of bonds due 2020 dropped about 5 cents on the euro to 74 cents, while Public Power Corp.’s 200 million euros of notes due 2017 declined 7 cents to 59 cents, data compiled by Bloomberg show.
A U.S.-listed exchange-traded fund tracking Greek stocks fell 9.7 percent in early New York trading, while American depositary receipts of National Bank of Greece SA plunged 20 percent.
“If there is no further support from the ECB, this might be the catalyst for Grexit,” Jakob Christensen, a senior economist at Exotix Partners, wrote in a note. “It will be very difficult, if not impossible, for the Greek government and Europe to find a way forward.”
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