Greek borrowing costs march higher

Greece's government borrowing costs rose sharply and Athens' main equities index endured a volatile run on fresh concern about the government's ability to reschedule its bailout payments.

The Financial Times reported on Thursday that Greek officials had made an informal approach to the International Monetary Fund to delay repayments of loans and were told that rescheduling would not be possible. The IMF is due to receive €1bn in two payments in May.

The yield on bonds due in 2017 marched to its highest level since it was first issued in 2014, rising by about 4 percentage points to 27.9 per cent. Meanwhile, the 10-year yield rose 123bp to 12.9 per cent.

The Athens General equities index fell by as much as 0.6 per cent to 739.23, with banks leading the losses, falling back from intraday gains seen before the report was first published. It then recovered, to trade down 0.4 per cent on the day.

The report stoked concern about the Greek government's ability to successfully navigate talks with its creditors to unlock the next bailout tranche, needed to keep the banking system supplied with funds.

Alexis Tsipras, Greece's prime minister, is due to meet finance ministers from across the eurozone on April 24 in Riga in order to discuss reforms he has put forward as part of his government's attempt to unlock the funds and live up to its anti-austerity mandate.

"There has been slow progress on negotiations around the conclusion of the second financial programme for Greece, expected to be agreed at the end of April," said Francois Cabau at Barclays.

"The elevated uncertainty continues to drive deposit outflows, it creates solvency concerns for the banks, it limits tax revenues [and] it hampers 2015 growth prospects."

Shares in banks made notable losses in Athens: Piraeus Bank fell 4.8 per cent to €0.257; Eurobank Ergasias was down 5.5 per cent at €0.08; and Alpha Bank lost 1.2 per cent to €0.223.

Chris Williamson, chief economist at Markit, said: "Greece's debt repayment capabilities are being hit by a renewed downturn in the economy.

"It's not just a factor of domestic demand having weakened in Greece. In fact there are signs that consumers are switching away from imports to domestically-produced goods. More worrying is a downturn in exports - The purchasing managers' index survey showed goods exports dropping at an increased rate in recent months, with the rate of decline reaching the fastest since mid-2013 in March despite the recent fall in the euro."

As investors pushed Greek borrowing costs to elevated levels, the haven appeal of German sovereign debt helped its 10-year yields to fresh record lows approaching 0 per cent, down a further 2bp at 0.09 per cent.

The euro recovered its poise, rebounding from intraday losses to rise 0.3 per cent on the session to $1.0710, keeping the shared currency heading away from the four-week lows its touched on Tuesday.

Barclays' Mr Cabau added: "Overall the probability of a Greek exit from the eurozone remains higher now than it ever was, even if a no-default 'muddle-through' remains our baseline forecast for now."

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