Greek bonds tumble after ECB market jolt

Greece's government bonds tumbled with bank debt and equities as the European Central Bank jolted markets with its decision to restrict access to funding lines for the nation's financial institutions.

Greek assets had already slumped after the anti-austerity Syriza party triumphed at January 25th elections. Now, the ECB’s decision will raise financing costs for the nation’s lenders, adding to pressure on the newly-elected government to moderate its policies or risk sterner measures that may jeopardise Greece’s membership of the 19-nation currency bloc.

“This is clearly a warning shot,” said Christian Lenk, a fixed-income analyst at DZ Bank in Frankfurt.

“It’s certainly showing that the ECB is not willing to let the new Greek government go ahead the way it was planning to go.”

Greek three-year note yields increased 45 basis points, or 0.45 percentage point, to 16.78 per cent as London makets closed. The ASE Index of stocks in Athens dropped 3.4 per cent, with a gauge of lenders slumping 10 per cent, while the bonds of Greece’s four biggest banks also declined.

The cost of insuring against losses on Greek sovereign debt jumped and credit-default swaps now signal there’s a 68 percent chance the nation will default within the next five years.

The yield on Greek three-year notes surged from last year’s low of 3.07 per cent set in August as the rise of Syriza threatened the austerity measures demanded by international creditors in return for financial aid.

Greece’s bonds already came through the biggest debt restructuring in history after private bondholders wrote down about €100 billion in 2012 as part of its bailout agreement.

Bloomberg