The last two sessions of the stock market exchange in Athens have been dramatic, which has seen loses of about 9 billion euros and a major increase of the cost of borrowing.
Indicative of the panic at the markets is that the yield of three-year bonds issued in July with a 3.375% interest rate increased to 9.5%, surpassing the yield of ten-year titles, which remain at 8.8%. This suggests that the markets doubt Greece’s ability to pay off it short-term debt and suspect a suspension of payments may be immanent.
Additionally the risk premiums against a Greek default reached a 14-month high, approaching 900 basis points. HSBC is confident that there is no threat of an immediate payment suspension, but with funding needs in 2015 being increased, problems may arise should the discussions with creditors and partners delay.
IHS Global Insight analyst Diego Iscaro told Reuters that “we are likely to see a lot of volatility over the coming months as investors are likely to avoid Greek assets until the political situation becomes clearer”, while Renaissance Capital’s analyst Charles Robertson told the Financial Times that a possible SYRIZA win in snap elections may force the Eurozone to chose between further support, via a debt haircut, or the first expulsion from the Euro.
Citigroup estimated that the government brought the Presidential election forward in an effort to reduce the political uncertainty and to increase its chances in the critical elections, however HSBC notes that by focusing on the elections, critical reforms will delay, which in turn may have major consequences on the economy and investor trust.
HSBC further notes that the possibility of rising to power may be double-edged sword for SYRIZA, as it will not be able to remain in the “back seat” anymore and will have to be more specific on how it intends to negotiate with the troika when the technical extension of the bailout ends in March.
Barclays on the other hand is not certain of SYRIZA will have to form a coalition to govern, but expects that such a coalition would cause some upheaval in the markets, given the party’s stance on certain financial matters. The ban however points out that the opposition party has softened its stance in recent months.
