September 12, 2011
Benchmark bond prices have hit severely distressed levels, with two-year Greek debt trading at a bid yield of 74 per cent and 10-year bonds at 23.55 per cent, each a fresh record. Both are trading at prices of 40-50 cents in the euro, indicating that investors are fearful of suffering big losses.
“There is a huge uncertainty premium built into [Greek] spreads. A default sooner or later is almost inevitable,” says Helen Haworth, head of interest rate strategy at Credit Suisse.
The effects have been rippling through other markets. With the exception of just three days in early 2009, eurozone bank stocks are at their lowest levels in at least seven years. Germany’s Dax-30 index of leading shares is down 35 per cent from its peak this year in May.
The recent stress has been elevated by signals that Germany is losing patience with the current process after its executive board member quit the European Central Bank and its economy minister said “an organised bankruptcy” of Greece should no longer be a taboo.
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