In order to gain insight into the bleakness of Greece’s current financial situation without a bailout program requires little more than a glimpse at their government-bond market.
What the curve tells us is that there is a very large risk of a restructuring, perhaps a default in the near term. It shows the highest risk of the nation defaulting on its private debt since 2012, when investors lost 100 billion euros ($112 billion) in the largest debt restructuring ever carried out.
Typically, investors accept higher yields on bonds which are maturing further into the future as they judge the risk of owning them to be greater. Currently in Greece the inverse of this is occurring. Two-year notes yield 23 percentage points higher than the 10-year bonds. This has also risen significantly since 26 June when Greek Prime Minister Alexis Tsipras called a referendum on austerity measures in exchange for further bailout funding.
The nation’s yield curve has been inverted in this manner since December 2014 and the situation continues to deteriorate. Greece has closed the doors of its banks and stock market implementing also a complete stop on the trading of its bonds via the Bank of Greece’s electronic trading platform.
On 29th June, Tradeweb Markets LLC joined the Bank of Greece by halting trading of the bonds on its platform.
It is likely that the curve will remain inverted in this manner until investors and the market can be sure that Greek bonds are 100 percent backed by the European Union.
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