January 27, 2015 / 11:46 AM / 5 years ago

Greek market spirals as clash with creditors looms

* Europe open to debt extension, no writedowns

* Three-year bond yields top 14 percent

* Other periphery yields rise, but with QE cushion

* Bank stocks plummet, pulling down Athens index

* Moody’s says election outcome negative for rating (Adds quote, updates prices)

By John Geddie

LONDON, Jan 27 (Reuters) - Greek markets endured a second day of turmoil on Tuesday, after weekend elections resulted in an anti-bailout government that looks set on a collision course with the country’s creditors.

Three-year borrowing costs spiked above 14 percent, giving up over 4 percentage points since Sunday’s vote, while a collapse in bank stocks hauled down Athens’ main bourse.

Greece’s malaise also weighed on other low-rated bonds, although the blow was cushioned by the prospect of the European Central Bank’s new bond-buying scheme due to begin in March.

“There is a general anxiety about the situation in Greece and how it is all going to play out,” said Jakob Christensen, senior economist at distressed debt brokerage Exotix.

While only one in four of the capital market investors surveyed by German firm Sentix see the risk of Greece exiting the euro zone in the next year, there is a lot of concern about how it will manage its books and keep a weak recovery on track.

Ratings agency Moody’s said the election outcome - a clear win against austerity - could prolong risks to the country’s financing, liquidity and economic growth.

Fears of a deposit flight also struck Greek banks, four of which last week applied for the right to emergency funding. An index of the country’s top bank stocks plummeted to a record low on Tuesday. National Bank of Greece slumped over 10 percent.

In debt markets, 10-year government bond yields shot up 56 bps to a day’s high of 9.80 percent while shorter-dated yields were markedly higher - a sign that investors fear the country could once again be on the brink of default.


The anti-austerity Syriza’s triumph in Greece has sent political shockwaves across the bloc. It is forcing mainstream leftists who signed up to policies of fiscal discipline during the euro zone debt crisis to reconsider their position.

The result may boost parties such as Spain’s new far-left Podemos, born out of anti-capitalist street protests by the young unemployed and now leading both mainstream parties in opinion polls.

Ten-year yields in Spain, Portugal, Italy rose between 3-5 bps on Tuesday but strategists remained confident that the prospect of the ECB’s quantitative easing programme would bolster support for these assets.

“While volatility in Greek bonds is expected to continue as the political landscape evolves, we are not overly concerned about contagion outside of Greece,” said RBS in a note. (Editing by Jeremy Gaunt)

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