Eurogroup Meeting Failure will make Greece Turn to ECB

If no agreement is reached at the emergency Eurogroup meeting, focus will shift to the European Central Bank will do with its Emergency Liquidity Assistance (ELA) to the Greek Central Bank. If that is removed, then the country faces the prospect of capital controls in Greece and possible curbs on deposit withdrawals.

All this spells bad news for bond markets, which have already seen “hardship” in recent weeks.

“We have seen a significant widening of various (credit) spreads, particularly since Monday after the breakdown and abandonment in talks over the weekend,” said Peter Schaffrik, head of European economics and interest rate strategy at Royal Bank of Canada.

“I am pretty sure that as we go into Thursday’s talks and into the weekends, the story is not over, so the European bond market is going to stay volatile. I think what we are seeing is the market is making room for the deal not to happen and that is why these markets have been so volatile,” he said.

Spanish, Portuguese bond yields fluctuated on Wednesday ahead of the meeting having sold off sharply earlier in the week to hit multi-month highs as Greek debt contagion fears spread.

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