December 4, 2020

Greek Bonds Under Pressure

LONDON — Greek bonds led declines among peripheral euro-area nations Friday, sending 10-year yields to a record high, on concern the nation will have to reorganize its debt obligations as it struggles to reduce its fiscal deficit.

Separately, the International Monetary Fund said Friday that Ireland’s ability to sell sovereign bonds remains “elusive” and its situation may worsen unless the European Union develops a more comprehensive plan to deal with the region’s debt crisis.

Yields on 10-year Greek debt rose 53 basis points to 16.53 percent as of midday in London after reaching a record 16.55 percent. The 10-year German bund yield fell one basis point to 3.1 percent, making the spread between the two the most ever.

“The big headline of Greek debt reprofiling is really what defines the whole story,” said Ioannis Sokos, an interest-rate strategist at BNP Paribas in London. “It’s not a matter of if there’s a reprofiling. It’s a matter of when and how significant it is.”

The Luxembourg Prime Minister Jean-Claude Juncker this week proposed “reprofiling” Greek debt maturities as a way of limiting the losses of private bondholders. European Central Bank officials opposed the idea, with one executive board member, Jürgen Stark, saying any form of restructuring would be a catastrophe for the banking system. Fellow board member Lorenzo Bini Smaghi said a solution for reducing debt “but not paying for it will not work.”

Greece’s budget deficit is forecast to exceed the 7.5 percent target under the E.U.-led bailout, reaching 9.5 percent of gross domestic product this year, according to a forecast last week from the European Commission. The nation’s debt, already the euro area’s biggest relative to economic output, may reach 158 percent of G.D.P. this year and peak at 166 percent next year.

Irish bond yields have also jumped in the past month. The spread between Irish 10-year yields and German bunds, Europe’s benchmark was at 741 basis points as Friday afternoon in London. That compares with 594 basis points on April 6, the day Portugal said it would seek aid.

Ireland’s plan to stabilize its banks and reduce its deficit is “off to a strong start,” the fund said in a review of its aid agreement with Ireland. “This decisive approach to program implementation, which should be supported by a more comprehensive European plan, offers the best prospect to overcome market doubts.”

Ireland received an €85 billion bailout in November, led by the E.U. and I.M.F., as bank-rescue costs related to a real-estate collapse led to a mounting fiscal deficit. It was the second euro-region nation to get aid after Greece received a €110 billion package in May 2010. Portugal is set to receive a loan package totalling €78 billion.

Article source: http://feeds.nytimes.com/click.phdo?i=efc903fe414972946e71bc54dc92833f

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