Greek Debt Costs Rise After Political Uncertainty

Greece’s cost of borrowing has risen sharply this week thanks to a return to political uncertainty and fears that next year’s draft budget will not be approved by the country’s international creditors.

While nowhere near the dizzyingly high levels that sent the country to ask for an international bailout in 2010, yields on 10-year sovereign Greek debt hit 6.284 percent on Wednesday—the highest level since August 13. Yields remained elevated on Thursday at 6.123 percent. According to Bank of America Merrill Lynch, Greek bonds have gained around 44 percent over the last year, making them the top performer out of all global equity and bond classes.

In addition, spreads on Greek five-year credit default swaps (CDS) continued widening, suggesting a fall in perceptions of the country’s credit worthiness. On Wednesday, spreads widened by 15 basis points or 3.2 percent, making Greek CDS one of the day’s weakest sovereign performers, according to Markit.

Investors are concerned that politicians will fail to agree on a new president to replace Karolos Papoulias in March. This could trigger early elections—a regular occurrence in Greece—and cause the current coalition government to collapse.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza