IF: Greece Bond yields rise, stocks dive as election looms
(Reuters) - Greek stocks plunged 11 percent on Monday after a crucial vote in parliament paved the way for national elections while Russia’s rouble and stocks also lost ground on fears of a deep economic contraction in 2015.
Yields on 10-year Greek sovereign bonds rose above 9 percent, up more than 50 basis points on the day, forcing up yields on other low-rated euro zone government debt.
Yields on 10-year German bonds — which investors tend to flock to in times of stress – fell to a record low of 0.564 percent.
The euro was largely unmoved, wavering just 10 ticks in value around the decision, from $1.2205 to 1.2195, before immediately recovering.
European markets sold off heavily after the Greek government’s candidate for president failed to win enough votes from lawmakers, triggering an early general election next year. That could the left-wing Syriza party to power and potentially derail Greece’s bailout programme.
Greek stocks, which have been part of MSCI’s emerging markets index since last year, fell to their lowest since November 2012. Their daily loss was the worst since a 12.7 percent fall on Dec. 9.
Data on Monday showed Russia’s economy shrank 0.5 percent in November, and with oil prices showing no sign of recovery, a deeper contraction is likely in 2015.
The rouble resumed its slide after rising to three-week highs last week thanks to exporters’ dollar sales. It was 4 percent lower against the dollar after clawing back some early losses.
“When you look at the chart of oil prices versus rouble, at current oil prices the implied rouble rate would be around 70 per dollar,” said David Hauner, head of EEMEA debt and economics at Bank of America/Merrill Lynch.
“In other words the rouble is too strong relative to oil prices, and on a day when the central bank is not intervening it is normal to have the price weakening … To have a better sense of where the rouble is going to head we need to know where oil is heading.”
Worries about Greece took a toll on central European markets, although the Polish zloty rose 1.5 percent against the euro in holiday-thinned trade, recovering from 16-month lows hit last week.
Emerging equities rose 0.6 percent to two-week highs, tracking gains on Wall Street and in China, where stocks closed at their highest level since 2010.
While a Reuters poll predicts that China’s manufacturing growth will slow to 18-month lows in December, market players reckon this may lead to more stimulus measures.
