You Might Want To Start Paying Attention To Greece Again...

Here’s something for your radar that you haven’t thought about in a while: Greece.

Greek borrowing costs — which had been on a relentless march lower over the last many months — have jumped to a two-month high in recent weeks.

This is a chart of the Greek 10-year bond.

Obviously yields are still significantly lower then where they have been.

But in addition to the rising borrowing costs, there are signs that all is not stable in Greek politics.

The far-left SYRIZA party is surging in the polls.

In regional elections that are happening Sunday, SYRIZA is performing very strongly, and the main party, New Democracy is underperforming. Meanwhile, PASOK, which is the mainstream liberal party that is part of New Democracy’s government coalition is seeing its already measly support collapse.

According to the newspaper Ekathimerini, the Greek government is once again at risk.

Remember, the eurozone has found stability, because of an implicit pact between the national governments and the ECB. The ECB will backstop sovereign debt, in unlimited amounts, provided the national governments play ball and agree to fiscal reform and oversight and austerity. This has worked very well for bond investors, because it means that default is unlikely, but the eurozone economy is still extremely weak, especially in peripheral countries, like Greece.

If the Greek government were to lose its authority, and ultimately get replaced by a more radical one less inclined to go with the ECB’s demands, the eurozone’s stability pact no longer works.

Just something to watch.

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