Greek Yields Jump After PM Rejects Creditors Terms

Yields on Greek and low-rated euro zone bonds rose on Friday after Greece’s economy minister rejected its creditors’ proposals for a reforms-for-cash deal that the country needs to avoid defaulting on its debts.

The move kept investors nervous after a vicious bond market sell-off this week spurred by the European Central Bank playing down market volatility and strong euro zone inflation data.

On a more positive note, the Bundesbank raised its forecasts for German economic growth on Friday, bolstering the view that the broader euro zone economy may have turned a corner, which would justify higher bond yields.

Greece opted to miss a debt payment due to the International Monetary Fund, choosing as widely expected to bundle its four payments due this month into a single 1.6 billion euro lump sum due on June 30.

Economy Minister George Stathakis said that the country has the money to pay the 300 million due on Friday but that it chose not to. He said Greece cannot accept new proposals put forward by its euro zone, IMF and ECB lenders.

Greek Prime Minister Alexis Tsipras, facing fury among his leftist supporters, demanded changes to the tough terms set out for a cash-for-aid deal to stave off default. He will put the proposals to parliament from 1500 GMT.

“The rejection … of the creditors’ proposals means that we are in a more difficult state than people had hoped at this stage,” said Commerzbank strategist Christoph Rieger.

“Clearly they (Greeks) have bought some more time by bundling the IMF payments and now the end of June is a make or break date, but overall the news flow out of Greece is negative.”

Greek two-year yields surged nearly two percentage points to 24.4 percent while 10-year yields rose 58 bps to 11.4 percent.

Portuguese, Italian and Spanish 10-year yields were 5-8 bps higher at 2.93 percent, 2.20 percent and 2.16 percent, respectively, near multi-month peaks reached on Thursday.

German 10-year yields, which set the benchmark for euro zone borrowing costs, were 7 bps higher at 0.91 percent after the Bundesbank raised its growth and inflation forecasts and Spain reported strong industrial production figures. They were still off an eight-month high of 0.998 percent hit on Thursday.

Investors were also braced for U.S. jobs data due at 1330 GMT for hints on when the Federal Reserve could start raising interest rates. Economists polled by Reuters expect the report will show U.S. employers added 225,000 jobs in May, which would reinforce the case for a September move.


Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell