The president of the European
Central Banks (ECB) expressed his concerns about Greece’s sustainability of
debt, thereby closing all possibilities for entering the Quantitative Easing (QE)
Program. His claim was that even though the Eurogroup underwent a commitment
and gave a new euphoria to the Greek bond market, it does not provide the
necessary clarification sought by the ECB.
This June the Eurogroup
approved the tranche of 8.5 billion euros to Greece, and the evaluation with
new laws put to place and commitment by the Greek government. This eliminated
any possibility of default this summer but under the ECB chairman, despite huge
improvements in the Greek economy in the short term, long term there are still
concerns.
The fact that no one comes
forward to guarantee that the Greek debt is sustainable with measures to
relieve the debt, and no measures are taken towards that direction (due to the
upcoming German elections) there is risk and uncertainty in the horizon.
Greek short term bonds
rallied with the return being under 4% since January 2010, but suddenly the
market perception of risk climbed and there was sell off with returns climbing
to 6% yesterday.
Notice in the graph above how the yields rose due to the Greek government's long delay in concluding the evaluation. Risk and uncertainty give rise to higher yields, as investors require a higher return for a given level of risk.
Bill T. Alexandratos
June 27, 2017
