* Greek yields soar as restructuring worries hits sentiment
* Other lower-rated debt suffers, safe-haven Bunds rally
* Cost of insuring against Greek default hits record high
By William James
LONDON, April 14 Greek bond yields soared on
Thursday, with short-dated paper coming under the most intense
pressure, as markets priced in a greater probability that Greece
would be forced to restructure its massive public debt.
The yield on two-year Greek bonds GR2YT=TWEB hit 18.38
percent, up around 90 basis points on the day while five-year
yields GR5YT=TWEB hit a euro lifetime high of more than 18
percent, up by more than 80 bps.
The cost of insuring against a Greek sovereign default rose
to a record high.
"All this talk of restructuring on Greece is really hitting
sentiment now, the ECB seem to have disappeared from the market
and the whole periphery is getting hit," a trader said.
The 10-year Greek yield GR10YT=TWEB rose to a euro
lifetime high of 13.32 percent, widening the spread against
benchmark Bunds to around 990 basis points.
The euro EUR= slipped broadly, hitting a session low
versus the dollar. [ID:nWEA4594]
While the bond market had already priced in a high risk of
restructuring in debt-laden Greece, comments from the German
finance minister on Wednesday have triggered fresh concern that
holders of Greek debt could face losses.
In an interview with Die Welt newspaper, Wolfgang Schaeuble
said "additional steps" would have to be taken to deal with
Greece's huge debt burden if an analysis from the European
Central Bank and European Commission in June showed it to be
"Much of the restructuring is already priced in but I
suppose it is now the uncertainty principle which is continuing
to push risk premia higher," said Richard McGuire, strategist at
The cost of insuring against a Greek default through credit
default swaps hit a record high at 1,105 bps according to data
The pressure spilled over into other lower-rated euro zone
bonds, with Portuguese, Spanish and Italian debt all sharply
underperforming Bunds. The Portuguese yield spread hit 578 basis
points, 24 bps wider on the day.
"What the market is extrapolating is that if indeed we were
to see a debt restructuring with a haircut of 50 percent, like
it was suggested by the S&P guys, this would obviously have an
effect on Spain and Italy," said WestLB strategist Michael
Moritz Kraemer, head of sovereign ratings at Standard &
Poor's, told Die Zeit a "haircut" of an even larger 50-70
percent might be necessary and that a debt maturity extension
would not provide sufficient debt relief. [ID:nLDE73C26F]
"The banks there are vulnerable to any haircut on Greek debt
given that they still have a lot of Greek stuff on their books."
The deterioration in the periphery pushed investors into
safe-haven German debt, sending the price of Bund futures to a
high of 121.07, 60 ticks higher on the day.