The ‘attack’ on Greek bonds continues – Investors vs ECB scored 1

Her Eleftherias Kourtali

Markets continue to test the … limit of the European Central Bank’s pain and its determination to fight anyone who leads to market fragmentation – as Lagarde pointed out last Thursday, sending Greek bonds to a new sell-off while the pressures on Italian bonds as well.

The yield on the Greek 10-year bond is currently jumping to 4.65%, much higher than it was when the ECB was forced to activate PEPP in March 2020 – and at the same levels as at the end of 2017, with the spread soaring at 293 basis points. The rest of the Greek bonds note a similar sell-off, with the 5-year-old seeing its yield skyrocket to 3.63%.

The yield of the 10-year Italian bond is now reaching 4.15% and the highest levels since 2018, with the spread also expanding significantly, to 252 basis points, which according to some analysts is the limit that worried the ECB in 2020, although officially there is no specific limit on the spreads for central bank interventions. Citi estimates that the Italian spread will increase to 275 bp.

Moody’s said in a new report that while the normalization of the ECB’s policy will not derail the debt reduction of the peripheral countries, it will weaken its accessibility and fiscal space, and the end of the ECB’s asset purchases will lead to a gradual shift in the composition of sovereign debt holders to more risk-averse private sector bondholders, thus increasing the risk of investors fleeing.

Although the Board The ECB has decided to keep quiet and prevent any leaks about a new tool to support the bond market, as Bloomberg revealed yesterday, as it believes that this would lead investors to test any tolerance of the ECB, however, as they show. things the ECB is already causing what it … wants to avoid.

Investors are taking the risk and sending strong waves of pressure on bonds, exposing the most vulnerable countries. According to analysts, bond pressures are expected to continue and there is a risk that the ECB will eventually need to design a “bazooka” to reduce spreads, especially in the region.