Greek bonds lower Euro-periphery debt

Support for Prime Minister Antonis Samaras’s coalition partner PASOK, which dominated Greek politics for three decades, plunged to sixth place with just 5.5% of the vote in a recent poll as voters blame the party for the country’s economic meltdown.

“Risks in Greece are still largely underestimated” so the sell-off in bonds could continue, said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. If the outcome of the European Parliament elections “has an impact on the next steps for debt sustainability then it could also spill over to other markets in the periphery.”

Greek 10-year yields rose 49 basis points, or 0.49%, to 6.80% at 2:30 p.m. London time after climbing to 6.85%, the highest level since March 28. The 2% bond maturing in February 2024 dropped 2.98, or 29.80 euros per 1,000-euro face amount, to 75.415.

The prospect of the 27 PASOK lawmakers withdrawing their support for the coalition could deter the foreign investors helping to fuel the recovery, according to Megan Greene, chief economist at Maverick Intelligence and a columnist with Bloomberg View in London.

“If there were snap elections and investors were spooked by the prospect of SYRIZA being the negotiator for Greece, it could really hurt the Greek recovery because it’s so fragile,” Greene said in a telephone interview. SYRIZA is the opposition party that rejected the terms of the nation’s international bailout.

Germany’s 10-year yield dropped three basis points to 1.33%, the lowest since May 20, 2013. The rate on Belgium’s five-year notes dropped one basis to 0.72% after being as low as 0.704%. Italy’s 10-year yield rose eight basis points to 3% after dropping to 2.885%, the lowest since Bloomberg began collecting the data in 1993.

Reports today showing uneven growth across the euro region and inflation at less than half the European Central Bank’s target boosted the case for more stimulus.