Jump in Greek yields spurs restructure talk

Financial Times
May 3, 2011

It is now considered inevitable. After one of the worst months on record for the Greek bond market since the country joined the euro a decade ago, investors are convinced Athens must default on its debt.

The leap in Greek yields in April by nearly 10 percentage points for two-year bonds has moved the debate sharply forward and the question for markets has become when and how – not if – Athens will restructure its public debt.

The immediate concern is that Greek yields could lurch higher still because a default is not fully priced into the market. A further rise in yields would be likely to create more instability in Athens and greater urgency over the need for a restructuring.

Critically, more sharp rises in the cost of Greek borrowing would increase the risks of contagion to Spain, the eurozone’s fourth-largest economy, and a deepening of the currency club’s crisis.

More