The big win by the radical Leftist SYRIZA party in Greece has sent government bonds tumbling amid fears Prime Minister Alexis Tsipras could walk away from some of the country’s debt.
Tsipras was elected on the promise to renegotiate the harsh austerity terms that came with 240 billion euros ($306 billion) in two bailouts from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) or renege on as much as half of it, rattling investors.
He has moderated his tone to say he won’t act unilaterally and will negotiate with the Troika first but there are still jitters in the markets about what the one-time Communist youth leader will do.
Spanish and Italian bonds erased earlier declines as the ECB’s newly announced bond-buying plan may shield those nations’ securities from a sell-off, analysts told the Bloomberg news agency.
“The uncertainty surrounding Greece’s future in the euro is unlikely to go away in a hurry,” said Lena Komileva, London- based chief economist at G Plus Economics Ltd., whose clients include central banks, said before the final election results on Jan. 25. “It will be a bumpy ride for euro-zone high-yield bonds. ECB funds may insulate other euro governments from liquidity shocks.”
Greek three-year yields rose 76 basis points, or 0.76 percentage point, to 10.84 percent early on Jan. 26 with the rate falling more than one percent in the previous three days as the ECB outlined a program of sovereign-debt purchases, while saying Greece wouldn’t immediately be included in the plan.