Bonds: Greece pushes euro to the brink



LONDON (ShareCast) - These were the yields and movements on some of the most watched 10 year bonds by the close in Europe (Chicago Options: ^REURUSD - news) : Spain: 6.08% (+24bp) Italy: 5.60% (+14bp) France: 2.86% (+4bp) Germany: 1.52% (-3bp) UK: 1.90% (-3bp) US: 1.82% (-2bp) Political paralysis in Greece polarized debt markets on Wednesday as investors weighed up the risks of a break up of the Eurozone. Following weekend elections in Greece the leader of the left wing Syriza grouping, Alexis Tsipras, is currently trying to form a coalition. It appears his demand for allowing opponents into power is that they reject the terms of the €240bn bailout the previous administration agreed with the IMF (Berlin: MXG1.BE - news) and the other countries which use the euro currency. The implications of Greece attempting to fight for a different deal, or simply declaring itself insolvent, would be huge market volatility and increased pressure on the other heavily indebted countries: Italy and Spain. These concerns are clearly reflected in the 10 year yields of the under-pressure countries. Since the debt crisis began 7% has been the threshold point at which countries have sought bailouts - but if Spain spends a long time above 6% that will be a sign the problem has become chronic once again. The corollary of these developments in Europe are the extremely low yields on what are perceived to be the safest bonds. The yield on German bunds are at record lows and at one point today went below 1.5%. Despite David Cameron's recent political discomfort, the market also sees British debt as safer than much of the rest of western Europe. That will count for nothing though, if Greece leaves the Eurozone and Britain is exposed to what may well be a European depression. BS