Greek Bonds Resurgent as Yield-Hungry Traders Swayed by Politics
Greek Bonds Resurgent as Yield-Hungry Traders Swayed by Politics
(Bloomberg) -- Greek debt may no longer be Europe’s bogeyman.
Yields on the country’s 10-year bonds dropped below 3% for the first time on record, while those on five-year securities dropped below their Italian peers, a sign of the diverging fortunes of the two nations. Italy has replaced Greece as the target for concern about European political risk, meaning Athens has benefited more from demand for higher returns in a low-yield environment.
Investors have to effectively pay to hold the debt of most European governments out to five years of maturity, with Italy and Greece among the few exceptions. But while Athens is being rewarded for improving public finances with lower yields, fears about Rome’s populist administration and its budget spat with the European Union has seen Italian debt miss out on the recent global fixed-income rally.
“Tumbling bond yields basically force even more of a reach for yield, and in a very thin market like Greece, a squeeze is all too easy,” said Marc Ostwald, global strategist at ADM Investor Services. “The fundamentals story is more a convenience in justifying the reach, rather than the key trigger.”
The yield on Italy’s five-year bonds rose as much as 13 basis points to 1.81% on Friday, a three-month high. That on their Greek equivalents fell as much as 12 basis points to 1.73%, a record low. The rate on Greece’s 10-year debt fell to 2.92%, also an all-time low.
Greek premier Alexis Tsipras has called for snap elections on July 7 after his party suffered a crushing defeat in EU elections this month, while electoral success emboldened Italy’s Deputy Prime Minister Matteo Salvini to threaten to bring down his coalition government unless he can push through his tax plans.
To contact the reporters on this story: James Hirai in London at jhirai3@bloomberg.net;John Ainger in London at jainger@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Scott Hamilton
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