By Tommy Stubbington
Greek markets buckled Wednesday with the aftermath of Syriza's
election victory continuing to shake investors' confidence in the
country.
Stocks and bonds in Greece have been hit hard by fears that the
antiausterity party could derail the terms of its financial support
from its European partners, resulting in another default on its
debt or even an exit from the eurozone.
Bank shares, which are always closely tied to the country's
government bonds, were also weighed down by growing fears that
Greeks are moving their money outside the country to shelter
themselves from the possibility that the country exits the
eurozone.
The bonds selloff accelerated Wednesday. Traders said Syriza's
postelection rhetoric and choice of a right-wing antiausterity
party as its coalition partner have fanned investors' concerns that
the new government is set for a showdown with its creditors.
Syriza leader Alexis Tsipras on Wednesday reiterated he is ready
to negotiate a debt reduction. "The market is pricing in a
restructuring of some form," said Richard McGuire, a fixed-income
strategist at Rabobank.
"Eventually we think a compromise will be reached with the
Troika, but you'd need a very strong stomach to buy into Greek
markets at the moment, " he said.
Short-term bonds, a gauge of investor concern over the
possibility of default, sank particularly heavily. The yield on
two-year debt rose by 3 percentage points, an enormous move by
bond-market standards, to nearly 17%. Yields rise when prices
fall.
Greek bonds maturing in 2019, issued last year at a yield of
just under 5%, now yield over 13%. As a whole, Greek bond yields
are closing in on the highs they hit in early January when markets
first began to worry about the prospect of a Syriza victory. Greek
stocks traded down 9.5% in the European afternoon.
"I don't find it comfortable investing in Greece right now. The
risk of restructuring is just too high," said Torgeir Høien, a
portfolio manager at SKAGEN Funds who sold all his Greek bonds late
last year.
"We have a very peculiar coalition governing the country now.
The only thing binding them is their opposition to the terms of the
bailout. Any restructuring would be likely to affect privately-held
debt," he said.
But not all investors are giving up. Japonica Partners, a Rhode
Island investment firm that in 2013 said it was one of the largest
holders of Greek bonds, hasn't sold any of its holdings, according
to Chris Magarian, its finance group director. Relatively low
interest costs on emergency loans mean Greece's debt burden is
lighter than commonly thought, he said, adding that he believes
Greek government bonds are set to recover.
"We are pleased for the Greek citizens who said no more to those
who sold fear. Greece has the opportunity for a fresh start," he
said.
Stocks tumbled for a third straight day. Athens's main stock
index hit its lowest level in more than two years. Bank stocks were
hit particularly hard, with Piraeus Bank S.A., Eurobank Ergasias
SA, National Bank of Greece S.A. and Alpha Bank AE all falling by
more than 20%.
Outflows from Greek banks accelerated in January, according to a
report published by Moody's Investors Service this week, with
around 5% of deposits having left the banking system since the end
of November.
"The uncertainty has fueled renewed speculation around the risk
of a Greek exit from the euro area, and damaged depositor
confidence," said Nondas Nicolaides, an analyst at Moody's.
"Potentially the biggest losers from the Greek election, and the
extended period of uncertainty that markets may be in for, will be
those that hold Greek assets, especially if Greek banks continue to
face liquidity constrains as depositors take money out of the
financial system," said Maria Paola Toschi, a market strategist at
J.P. Morgan Asset Management.
The Greek wobbles dragged down broader European markets, which
had started the day with an upbeat tone following a strong finish
to U.S. markets overnight. The Stoxx Europe 600 was 0.2% higher
midafternoon, but Spain's IBEX 35 fell 1.2% and Italy's FTSE MIB by
0.4%..
Bonds in Italy, Spain and Portugal all declined, giving up part
of the gains run up since the European Central Bank last week
announced a bond-buying stimulus program.
Safe-harbor German bonds rose, with the 10-year yield falling to
0.37%,
Write to Tommy Stubbington at tommy.stubbington@wsj.com
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