Greece’s Deadlocked Debt Talks Unnerve Investors
Yield on some Greek debt soars
Investors are dumping Greek bonds, fearing that Athens will be unable to pay debt that comes due this summer.
The selloff comes as the Greek government is again at a standstill in negotiations with its creditors in the eurozone and at the International Monetary Fund. Athens needs to break the deadlock and secure more aid before about €6 billion ($6.46 billion) in debt has to be repaid in July.
Complicating matters is the scheduled IMF board meeting next week and a lack of clarity over what position the U.S.--which has the largest vote at the fund—will take under the Trump administration.
The yield on one piece of Greece’s July debt owed to private creditors has more than doubled in the past few days to more than 15%, according to Tradeweb data, from less than 6% last week, a level that even then was consistent with a highly risky security. The rising yield—rising bond yields mean falling prices—is a sign that investors view a much higher probability of default.
The trigger-happy nature of investors in the Greek bond market has intensified the selloff. “A big part of trading volume in the Greek market comes from active accounts that follow the news flow,” said Argyrios Gkonis, an analyst at Axia Ventures.
The deadlock over Greece’s debt is familiar.
The IMF says Greece’s debt is too high for it to receive more aid in the form of loans. Eurozone creditors, led by Germany, won’t commit to major debt relief. Greece itself is resistant to more budget cuts. Germany says it won’t continue to help Greece without the IMF alongside.
The atmosphere worsened after a statement on Tuesday by a member of parliament from the ruling Syriza party that a debate over Greece membership in the euro shouldn’t be a taboo. Quitting the euro would likely lead to substantial losses for holders of euro-denominated Greek debt.
“I believe there has to be a political and national discussion the likes of which hasn't taken place during the last seven years,” said Nikos Xydakis, a former minister in the Syriza government, though he later clarified his comments by restating his support for Greece’s eurozone membership.
Still, his comments followed reports on German media earlier this week that suggested the German government is warming to the idea of Greece abandoning the euro, the so-called Grexit.
Tension around Greece’s financial position has been building for some time. Ratings firm Moody’s Investors Service said in December that a delay in closing the review of Greece’s bailout program “increases the risks that repayments to bondholders due in July 2017 may be missed.” The bailout review is pending.
“Greece doesn’t have the liquidity [to repay the bond], so it will need financing from the program,” said Axia Venture’s Mr. Gkonis.
European officials are scheduled to meet next week, and if no headway in negotiations is made then, talks could stall until after the Dutch elections, Deutsche Bank said in a note to investors this week. Voters in the Netherlands are scheduled to go to the polls on March 15.
Greece and its creditors have run up against deadlines many times in the seven year bailout, and bond yields have soared and sunk as negotiations stalled and restarted. Greece defaulted once on private creditors, in 2012.