Outcome of Greece election offers merely brief relief for markets
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Monday, pushing yields slightly lower, as the outcome of Greece’s election offered only a brief respite and the market’s attention turned to Spain, where yields rose above 7%.
Yields on U.S. 10-year notes 10_YEAR -0.06% , which move inversely to prices, fell 2 basis points to 1.57%. A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR -0.34% decreased for a fourth session, by 1 basis point to 2.67%.
Five-year note yields 5_YEAR +0.74% edged up a basis point to 0.68%.
Greece’s election was seen as the country’s referendum on whether staying part of the euro zone is worth the extreme belt-tightening they’ve endured for taking an international bailout.
The pro-bailout New Democracy party received the largest share of votes in Sunday’s critical parliamentary elections. However, the party will need to form a coalition with another group to govern Greece. Read more on Greek election.
Meanwhile, attention quickly turned to Spain, as data from the Bank of Spain showed bad loans for banks continued to rise in April. Also, a local business newspaper said Spanish banks could need additional provisions for bad loans worth up to €150 billion ($189 billion). Read about Spanish bank needs.
“Treasurys have rallied off earlier lows after euphoria over New Democracy’s narrow electoral win quickly faded as Spanish 10-year yields broke above 7%,” said bond strategists at RBS Securities. “Foreign inflows into safe-haven U.S. dollar assets continue, and should underpin the Treasury market until foreign reserve managers and others see renewed opportunity in Europe or elsewhere.”
Spanish 10-year yields ES:10YR_ESP +4.98% jumped 31 basis points to 7.18%, according to Tradeweb.
Italy’s 10-year yields IT:10YR_ITA +2.91% also rose sharply, up 18 basis points to 6.11%.
Both levels are considered unsustainable for a country to refinance itself in the public market, raising the risk that they too will need an international bailout to finance their debts — which are much larger than Greece’s, Ireland’s or Portugal’s.
The move up in Spanish and Italian yields continues last week’s rise on worries that the countries will need more international aid, even after Spanish banks were promised billions at the beginning of the week. Read Friday’s Bond Report.
Deborah Levine is a MarketWatch reporter, based in New York.
