Bloomberg News
Six months after Greece’s spectacular rehabilitation on international debt markets, investors are thinking twice.
Greece’s 10-year government bond yield Tuesday hit 6.98%, having climbed from a trough of less than 5.5% in June, as the country rode a wave of positive sentiment towards riskier eurozone debt following its successful return to bond markets in April. Yields rise as prices fall.
The latest spike, which carried 10-year yields to their highest since March, came as a fresh poll showed the anti-European Union party Syriza continues to enjoy a sizable lead in the opinion polls. If elections were held tomorrow, Syriza would win 26.7% of the vote, compared with just 20.2% for Prime Minister Antonis Samaras’ New Democracy party.
That matters: New Democracy doesn’t have enough votes in parliament to appoint a new president, a hurdle that could spark elections as soon as the first quarter of next year. Mr. Samaras has had to push through unpopular cost-cutting measures, in an effort to exit its bailout program ahead of schedule. Those plans have strained relations with other EU leaders who would prefer the country remains in the program.
“With Syriza ahead in the polls, it’s not surprising the market is pricing in bigger risks,” said Gareth Colesmith, portfolio manager at Insight Investment.
Some investors think Athens has made impressive strides, but continue to treat Greek bonds as a risky bet.
“The economy is on the mend,” says Nicola Marinelli, a portfolio manager at Sturgeon Capital, which bought Greek bonds at the April sale. But the firm sold them in mid-summer, profiting from the brisk rally.
“It’s not as if Greek bonds suddenly became a steady, low-volatility asset. It’s an opportunistic play,” Mr. Marinelli said.
And Greek bonds are particularly vulnerable against a backdrop of a broad retreat from riskier assets, as worries about global growth continue to drive markets.
“It’s bad timing. I would argue that if we were in a more bullish environment the news we have seen wouldn’t have had the same impact on the bonds,” Mr. Marinelli added