Greek debt came under intense pressure on Monday, with the yield spread against German Bunds soaring to fresh 12-year highs as investors grew impatient over the implementation and terms of a financial bailout for Greece.
Comments from Germany kept markets nervous over Berlin's commitment to providing aid for Greece, as investors sold Greek debt, forcing yields and the cost of insuring against default higher.
"The market wants to see the cash laying on the table, not in a coffer besides the table," said David Schnautz, strategist at Commerzbank in Frankfurt.
The Greek/German 10-year bond yield spread <GR10YT=TWEB> <DE10YT=TWEB> climbed to 670 basis points, surpassing the previous record 611 bps marked last week, and matching levels last seen in February 1998.
Greece formally requested emergency loans from the European Union and International Monetary Fund on Friday to avert a potential sovereign default under an aid package worth 45 billion euros.
German Finance Minister Guido Westerwelle said Berlin has not yet committed to providing financial aid, ramping up pressure on Greece to consolidate its 13.6 percent budget deficit. [ID:nBAT005339]
Earlier, Germany's ruling coalition said it would back Greek aid because the euro's future was at stake, but that Greece must first prove it was tackling its budget deficit. [ID:nLDE63P09O]
Athens said on Sunday the emergency loans would arrive in time to finance a debt rollover in May and avoid default, but there were signs from a meeting of the Group of 20 that the rescue package agreed for Greece may need to be bigger. [ID:nSGE63P05M]
The yield on 10-year Greek bonds rose to nearly 10 percent, with two-year yields <GR2YT=TWEB> soaring 250 basis points on the day to 13.3 percent.
Under the terms of the aid package, three-year loans would carry an interest rate of around 5 percent.
"It's going to be a bumpy ride in Greece, our view is it's going to be fine in the end, but it's not going to go in a straight line," said a bonds trader in London.
MEDIUM TERM
With Greece's immediate need to raise funds on the market due to be covered by the bailout package, the medium-term test of sentiment would be a fall in Greek yields, said Padhraic Garvey, head of investment grade debt strategy at ING.
"For that to happen there needs to be some buying of Greece, and we're not exactly seeing investors falling over themselves to buy Greece just yet," Garvey said.
At 0938 GMT, the Bund future <FGBLc1> was 24 ticks higher at 124.22. The 10-year German bond yield <EU10YT=RR> was 3.037 percent, down 2.6 basis points while the two-year Schatz yield <EU2YT=RR> was down 4.7 bps at 0.886 percent.
