GREECE - Greece plans to sell €1.25bn ($1.78bn) of 13-week Treasury bills today as growing speculation the country will need to restructure its debt pushed bond yields to euro-era records.
Greece's two-year bond yield exceeded 20% yesterday, as official denials that the nation was preparing a restructuring failed to convince investors. The yield on 10-year debt has jumped more than 300 basis points since Feb. 15 when Greece last sold 13-week bills at a yield 3.85%.
"Price actions in the market suggest people believe there's no smoke without fire," said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. "Greece will keep rolling over the bills even though the costs of doing so may be rising."
German Finance Minister Wolfgang Schaeuble's comments on April 14 that Greece may need to restructure its debt sent bonds tumbling across peripheral Europe. The slide reversed the gains of the previous week triggered by optimism that contagion from the region's debt crisis had been contained with Portugal's bailout request.
Schaeuble said his comments were misinterpreted, though German officials continued to speak of restructuring as recently as yesterday. "The big question is: will Greece make it through summer without buckling and having to find some means of restructuring its debt," said Otto Fricke, the parliamentary budget spokesman for Chancellor Angela Merkel's Free Democratic Party coalition partner. "The signs aren't good."
Greek government spokesman George Petalotis yesterday "categorically" denied reports in newspapers, including Eleftherotypia, that Greece has asked the International Monetary Fund and the European Union, which have provided the country with a €110bn package of loans, to extend the maturities of all the country's debt.
Additional budget measures and state-asset sales announced April 15, amounting to €76bn, are "the map for the country's exit from the crisis," Petalotis said.
His comments echoed those of Finance Minister George Papaconstantinou who said at an IMF meeting in Washington on April 16 and April 17 that restructuring is "simply not on the cards." Greece also found support from IMF Managing Director Dominique Strauss-Kahn and French Finance Minister Christine Lagarde, who denied such steps were in the works.
Investors remained skeptical, and the additional yield investors demand to hold Greek 10-year debt instead of equivalent German securities yesterday surpassed 1,100 basis points for the first time since before the euro's debut in 1999. The cost of insuring Greek sovereign debt jumped 101 basis points to a record 1,256, according to CMA prices for credit- default swaps. That indicates there's a 65.8% probability of default within five years.
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