No relief for soaring Greek borrowing costs

Financial Times
April 19, 2011

Greek borrowing costs hit fresh euro-era highs on Tuesday amid warnings that yields will rise further due to growing expectations Athens will be forced to restructure its debt.

A relatively successful debt auction failed to ease pressure on the country’s bond markets as another German official warned Athens was heading for default.

Greek three-year bond yields jumped to 21.37 per cent and the probability of a default by Athens in the next five years rose to 67 per cent, as shown by credit default swaps. The probability was priced in at about 55 per cent a month ago.

Yields on longer-term Greek debt have soared in spite of denials by the government of reports it wants to extend the maturity of is debt.

Strategists predict yields will continue to climb as the average price of Greek bonds remains at about 70 per cent of par. Most strategists expect a haircut of at least 50 per cent in the event of a restructuring – meaning prices would have to fall to 50 per cent of par before a default was fully priced in.

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