Greek equities took
another battering Wednesday while its yields spiked, as concerns about the
strength of the euro zone economy returned to spook investors.
"A major shift has happened in the last
couple of days, Greece, who everyone thought was on the mend, saw its bond
yield cross an important line," Brooks said in a note on Wednesday.
"If you cast your mind back three years… when Europe's struggling periphery
saw their bond yields cross above 7 percent, it was considered the point of no
return."
The spike in bond yields—and subsequent fall
in the stock market—comes amid growing concerns about Athens' plans to exit its
bailout ahead of schedule. On Saturday, Prime Minister Antonis Samaras won a
confidence vote in parliament, forcing lawmakers to back his plans to exit its
international aid program early.
"The Greeks think they can wriggle out
their bailout commitments and everyone else worries it will be deja-vu all over
again," Bill Blain, fixed income strategist at Mint Partners, said in a
note on Wednesday. "'Skepticism and concern' sums up the view on
Greece."
Although very few investors are buying
long-dated Greek sovereign debt at the moment, the yield on the 10-year note is
still seen as an indicator of investor sentiment in the country.
Greece
is hoping to leave its bailout program early and meet its funding needs through
the debt markets, rather than call on the "Troika" organizations
running Greece's bailout program– the European Commission, European Central
Bank (ECB) and International Monetary Fund (IMF)—for more assistance.
The country was one of the first in Europe
to be hit by the global financial crisis of 2008 and the full scope of its
problems helped spark the euro zone sovereign debt crisis. Greece needed to be
bailed out by the IMF and EU to the tune of 240 billion euro ($304 billion) and
was required to impose a tough—and hugely unpopular—austerity program.
It now hopes to leave the program before its
scheduled end in 2016 without further assistance, but analysts at Capital
Economics warned the recent spike in bond yields could hit these plans.
"(The) market reaction itself has made
it much less likely that Greece will be able to exit its bail-out early. The
current 7 percent yield on 10-year government bond yields is well above the
rates it pays on its IMF loans and the rates faced by Ireland and Portugal when
they exited their bail-outs," Capital Economics' Sarah Pemberton said in a
note.
Banks warning
In more bad news for
Greece, ratings agency Fitch warned on the country's banks on Wednesday, ahead
of the results of euro zone-wide stress test, due October 26.
According to Fitch Ratings, Greek banks
remain burdened by "large problem loan portfolios, despite boosting
capital and progress with their integration and restructuring plans".
"This means that EU-wide stress tests
could reveal additional capital shortfalls, especially if on-going
restructuring measures are not fully incorporated," Josep Colomer,
director at Fitch Ratings, said in a release.
He identified the four large Greek banks -
National Bank of Greece (NBG), Piraeus, Eurobank and Alpha - as being vulnerable
to a "improving but still very weak" economy.
Euro zone-wide fears
The agitation in Greek
markets come at a time of growing concern about the strength of the euro zone's
recovery. Last week, fears of a slowdown in Europe hit investor confidence
across the world, resulting in equity market volatility in the U.S., Europe and
Asia.
Gross domestic product (GDP) stalled in the
second quarter of the year—coming in flat, below expectations—and inflation
continued to fall in September, hitting a worryingly low 0.3 percent. Investors
are anxious that this slide will continue, with the latest inflation figures
due on Thursday.
There are also worries about the outlook for
Germany, once dubbed the "strongman" of Europe, as economic data from
the country has surprised on the downside over the month. Meanwhile on Friday,
ratings agency Standard & Poor's (S&P) cut its outlook for France to
negative from stable.
"Rising bond yields are merely a
reflection of the troubles that have resurfaced in the currency bloc. We tend
to think that the economy is the biggest threat, and if growth does not pick up
sometime soon then we could see rising bond yields spread beyond Greece into
Portugal, Spain and even Italy," Brook added.
Earlier on Wednesday, German 10-year bunds
hit a record low of 0.824 percent, highlighting the divergence between Europe's
largest economy and peripheral neighbors.
(Πηγή: cnbc.com)