Greek bonds suffer ‘violent reaction’ as IMF bailout decision looms.Greece’s benchmark government bond yields have hit their highest level in two months amid concerns the International Monetary Fund is poised to exit its involvement in the country after more than six years of bailouts.
Athens’ 10-year bond yields have surged another 39 basis points (0.39 percentage points) today after a 37bps rise yesterday, hitting 8 per cent and putting them on course for their worst weekly sell-off in nearly 12 months.
Although more than three quarters of Greece’s government debt is owned by its international creditors, the country’s bonds still provide a decent indicator of the market sentiment over its bailout programme (yields rise when a bond’s price falls).
Leaked IMF report
Investors are dumping the bonds after a leaked IMF report laid bare the schism between the fund and the EU over Greece’s economic health after 2018.
The Washington-based fund has a far more pessimistic outlook on the health of the Greek economy, warning of “explosive” debt dynamics if the EU does not provide a major debt restructuring for the country.
However, both Brussels and Athens think steady economic growth, combined with a healthy budget surplus and potential inclusion into the ECB stimulus measures will help erode the country’s debt burden, which currently stands at 180 per cent debt of GDP. The IMF thinks liabilities could swell to as much as 275 per cent of GDP after 2022.
Greece agreed its third international rescue deal with EU creditors worth €86bn in the summer of 2015, when the IMF pledged its support to the country but did not sign off on any fresh funds.
After months of wrangling with Brussels and Berlin, the fund is finally poised to make a final decision on whether it will give fresh cash to Greece next week – a key requirement for parliaments in Germany, the Netherlands, and Finland to agree to the rescue.
Klaus Regling, head of the EU’s bailout fund and Greece’s single largest creditor, said creditors would only approve a fresh injection of bailout cash when the IMF has decided on the level of its involvement.
Speaking in Luxembourg yesterday, Mr Regling also hinted the IMF could remain involved in the Greek programme on a technical rather than financial basis.
Greece will need its next tranche of bailout cash before July when it needs to repay €6.2bn to back to its official and private sector creditors.
Marc Chandler at BBH called said the market has responded “violently to the new round of brinkmanship”.
“Time is working against Greece. The elections in France and Germany do not provide a conducive backdrop for concessions, and the public support for the Greek government is sliding”, he said.
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