Greek 10Y yields, up 6 days in a row, have surged in the last few days to 2-month highs (bond price lows). The significant shift in sentiment appears related to two main factors. First, The Independent reportsthat Europe is considering pulling Troika (its economic oversight committee) – which has been likened to German Nazi occupation – out of Greece, forcing local politicians to come up with their own reforms by the start of 2015 (which clearly the market is not believing). Perhaps even more concerning is Goldman Sachs shift to neutral on European peripheral bonds, warning that “at current spread levels we think there is not enough of a buffer for investors to take credit risk in intermediate and long-dated peripheral sovereign bonds.” Time for some more ‘whatever it takes’ we think.
Greek Bonds are tumbling…
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The Independent reports
Brussels is considering pulling the troika out of Greece to allow Athens to pursue its own plan to improve the economy, European officials have told Reuters.
The move seems to be partly a reaction to political pressure from Greek anti-troika political parties set to do well in polls.
The discussion, still in its early stages, will gather pace as Greece and its euro zone backers chart a new course for the country with its second European bailout programme due to end later this year.
Dismantling the troika, which has been likened by some in Greece to the German Nazi occupation, would probably be central to the new plan for Athens, news agency Reuters added without saying where it learnt of the plan.
Switching to a ‘reform-for-debt-relief’ scheme with lighter supervision could sooth public frustration and help bolster the coalition government at the expense of far-left political party Syriza, which has promised to tear up Greece’s international bailout agreement and is leading in the polls.
“There must be Greek ownership of reform. The Greeks have until October to come up with a programme, which would be decided by December for the start of 2015.”
