Risky bonds

The financial troubles of Greece has had a detrimental effect on the rest of peripheral eurozone countries. Financial Times reported as follows:

There were further signs of contagion across the eurozone on Thursday as investors sold government bonds of many peripheral eurozone countries, sending yields higher.

Fears of default by companies in the eurozone periphery also rose sharply, indicating that the contagion was spreading to the corporate sector.

“The latest catalyst was [Wednesday’s] bond auction in Portugal which was scaled back and which has re-ignited fears that the likes of Portugal and Greece will not be able to fund their deficits without a bail out,” said Gavan Nolan, credit analyst at Markit.

These concerns have started to spread to corporates in peripheral eurozone countries with CDS spreads on companies such as Portugal Telecom, Telefónica and Hellenic Telecom rising significantly in strong trading volumes. CDS spreads on Portugal Telecom jumped 30 basis points in early trade to 150 basis points, their highest levels since April last year.

Portugal’s 10-year bonds jumped 5 basis points to yield 4.71 per cent. Ten-year Spanish sovereign yields levelled at out 4.1 per cent having climbed 2 basis points earlier in the session. Greek 10-year bond yields rose 6 basis points in early trade to 6.76 per cent but later recovered with yields narrowing to 6.68 per cent, a fall of 2 basis points on the previous close.