Default fears push Greek bond yields to new high

Yields on Greek 10-year government bonds have rocketed to record levels as fears rise the nation could default on its debt repayments, the FT reports.

As the bonds were sold off, yields climbed 61.5bp to their highest ever level of 16.75%. The yield on the equivalent German note fell back to 3.12% as investors turned to Bunds as a safe haven.

This week eurozone ministers met to discuss whether Athens should restructure its debt. The European Central Bank strongly opposed the move, with German chancellor Angela Merkel ruling out any immediate help for Greece.

Other solutions suggested this week include Greece dropping the euro and return to the drachma, voiced by Hans-Werner Sinn, head of Germany's Ifo economic institute, the FT reports.

Luxembourg's prime minister and chairman of the committee of eurozone finance ministers put forward a ‘soft restructuring' plan to help limit the losses of private bondholders.

Meanwhile, Spanish 10-year bond yields rose 9.1 basis points to reach 5.44%. Madrid sold €2.5bn of the benchmark 10-year notes at an auction last Thursday, and paid a slightly lower premium than the previous sale of the same bonds on 20 April. But spread over 10-year German Bunds rose 236 basis points, the highest level since January.

Jenna Barnard, manager of Henderson's Strategic Bond fund, said distressed levels of government bonds indicate the market expects a debt restructuring, although European politicians are continuing to deny this.

30-year Greek government bonds are trading at 46p in the pound, while 10-years are trading at 53p in the pound.

"These are extremely distressed levels. Now it is a much more a political call, it is more about how long the politicians will keep to this line of not restructuring the debt," said Barnard.