Markets No Longer Buying Europe's Bailout Talk On Greece, Bond Yields Now Rising Again

Greece Riot Fire

Bond markets continue to price-in increased risk into Greek bonds.

Despite both European and IMF implied support for Greece, bond yields approached 6.53% recently, compared to just 6.33% a week ago. Spreads against German bonds, another measure of perceived Greece-specific risk, have hit 342 basis points, after being 321 basis points at the beginning of last week.

Markets still aren’t buying Europe’s smoke and mirrors, and are demanding yields from Greek debt which many believe are simply unsustainable for the country:


“If the money we economise from tax proceeds and spending cuts is to be spent on interest, it’s clear that the country can neither carry out a fiscal adjustment nor have any benefit,” Deputy Finance Minister Filippos Sachinidis said.

Greece may pay about 13 billion euros more in interest on its debt this year and analysts say the country can ill afford to continue borrowing at rates over six per cent.

Others suggest the climate will improve once markets perceive that the government means business on ending decades of waste and mismanagement in the civil service, state hospitals and public-owned companies.

“It’s clear that Greece cannot sustain borrowing at six per cent for long,” said Athens Economic University professor George Pagoulatos.

So let’s be clear — the situation has not even stabilised, since the current status quo can’t be maintained by Greece for too long.

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