Greek bond yields soar as debt default fears swell

AP News
Posted: Apr 16, 2015 5:30 PM
Greek bond yields soar as debt default fears swell

LONDON (AP) — Mounting fears of a Greek debt default sent the country's borrowing costs surging Thursday and prompted one prominent U.K. bookmaker to stop taking bets on the possibility of Greece leaving the euro.

The jitters were triggered initially by a report in the Financial Times that the Greek government recently made an "informal approach" to the International Monetary Fund to have bailout repayments delayed.

Unease was also stoked by evidence that the Greek government is shuffling around resources to cover costs and by pessimistic comments over the prospect of a deal between Athens and its European creditors.

Perhaps the most dramatic sign that Greece's crisis is coming to a head was the FT report that the IMF persuaded Athens not to make a formal request to delay repayments to the Washington D.C.-based institution next month. Greece is due to pay the IMF around 1 billion euros ($1.06 billion) in two installments.

For investors, the report, which cited unnamed officials on both sides, was unsettling as it signaled that the Greek government is still a long way from convincing its European creditors about an economic reform plan that is needed to unlock the remaining funds in the country's bailout. Since 2010, Greece has relied on a 240 billion-euro bailout from its euro partners and the IMF.

In Washington, IMF Managing Director Christine Lagarde rejected the possibility that the IMF would grant Greece a delay in making the payments. She said no advanced economy had ever made such a request to the IMF.

Lagarde told reporters at a news conference that her hope was that the Greek government will be able to implement the reforms needed to make the Greek economy "more stable and to create jobs."

Failure to agree on a plan with creditors would cause Greece to default, a development that could force the government to put limits on money transfers and even lead the country to leave the euro.

"What is concerning is how quickly these 'informal' talks could turn into serious delays and missed payments as Greece rapidly runs out of money," said Connor Campbell, financial analyst at London-based spread betting firm Spreadex.

Investors are wary and the yield — a gauge of investor risk — on Greece's 10-year bonds surged a whole percentage point Thursday to just below 13 percent. The 3-year yield jumped to a staggering 28 percent.

Many in the markets think that without a deal, the Greek government will struggle to make upcoming debt repayments alongside day-to-cost commitments on such things as salaries and pensions. A missed payment is an effective default.

The prospect of a breakthrough in the talks appears distant. EU spokesman Margaritis Schinas said Thursday that "we are not satisfied with the level of progress made so far."

Experts from Greece and its international creditors have been holding talks in Brussels and Athens over the reform plans.

In February, the Greek government, elected on a promise to end crippling austerity measures, was asked to come up with a series of economic reforms if it wanted the next 7.2 billion euros in bailout money. The creditors have so far found Greece's proposed reforms insufficient.

The talks on the reforms were meant to conclude before April 24, when finance ministers from the 19 euro countries meet in the Latvian capital of Riga.

Greek Finance Minister Yanis Varoufakis will try Thursday to convince participants at the IMF's annual meeting in Washington that his government will present an acceptable plan in time.

For British bookmaker William Hill, the outlook for Greece's euro membership remains so murky that it's decided to not take any more bets on a Greek exit from the euro.

"No one is interested in backing Greece to stay in the eurozone until the end of the year, so we decided to pull the plug on the markets until either the decision to leave is taken or the crisis point passes and a plan is put in place enabling the country to remain in," said William Hill spokesman Graham Sharpe.

Even if a deal emerges, Greece will still likely require further financial assistance beyond the summer, possibly involving a third bailout.

Figures released Thursday showed Greece's financial situation remains parlous. Though the budget deficit in the first quarter was lower than expected — at 500 million euros against a target of 2.1 billion euros — the government has apparently been forced to take stop-gap measures.

The finance ministry said more than 600 million euros in payments for state procurements due in March will be carried over into coming months and that regular payment would be restored once the government's cash situation is "normalized."

Other stop-gaps have included regular short-term debt issues and the voluntary transfer of cash reserves of state companies to the country's central bank.

Deputy Finance Minister Dimitris Mardas did not rule out using a law that would force state entities to transfer their cash reserves to the central bank. He also said the ministry is working on cutting "wasteful" state spending, but without touching state salaries and pensions.


Raf Casert in Brussels, Nicholas Paphitis in Athens and Martin Crutsinger in Washington contributed to this report.