Sovereign Debt Crisis Escalates as Greek and Portuguese Bonds tumble

 

Bonds continue to fall as Greece edges closer to activating rescue aid from the European Union and the International Monetary Fund in order to avoid default.  As talks on aid conditions began in Athens today, Finance Minister stated that the country may ask for aid before talks conclude in a couple of weeks based off of a Bloomberg article.

As a result, Greek bond prices are tumbling this morning as yields reach new highs.  The yield on 2-year Greek bonds spiked 55 basis points to 7.77 percent as of 11am Eastern Standard Time according to Bloomberg data.  The yield farther out the Greek curve increased over 8 percent during this crisis.  The 5-year is currently at 8.09 percent, a jump of 42 basis points while the 10-year yield increased 27 basis points to 8.13 percent.

Greek Yield Curve - Today's Change

In the World Economic Outlook report, the IMF stated today that the outlook for Europe faces risks.  In particular the risks are market concerns over Greece solvency, which if left unchecked could lead to contagion and the need to adjust account imbalances in peripheral economies that could dampen growth.  

Apparently, the escalating Greek crisis is spreading into other countries like Portugal.  The yield on the 5-year increased 12 basis points to 3.83 in the morning session. 

Portugal 5-Year Bond Intraday Chart

Furthermore, CDS spreads continue to widen as investors drive up the price for protection against a default.  According to Bloomberg data, Portuguese 5-Year CDS spreads are up 27 basis points to 226 basis points while Spain 5-Year CDS is trading at 159 basis points this morning, a widening of 22 basis points from the prior close.

(Updated 11:47am to include Spain CDS data)

 
 
 

2 Comments

  1. adorientem says:

    One interesting piece of evidence is that on a day when the Euro fell and the Dollar rallied, gold made strong gains. People are getting nervous. Greece is just the tip of the iceberg.

 
 

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