Greek, Irish Debt Worries Return
By MICHAEL WILSON And NICK SKREKAS
Greece and Ireland bore the brunt of investors' sovereign-debt concerns again Friday, as bond yields and the cost of insuring government debt against default rose in both countries.
The new caution rose from news this week of diverging economic trends in the euro zone, Greece's deepening recession and perceived solvency problems at Irish banks.
"Just like during the Greek debt crisis, investors again seem to focus at the [heterogeneousness] of euro-zone member states, not only in terms of growth differentials," said Manuel Oliveri, a market analyst at UBS in Zurich.
The annual cost of insuring $10 million of Greek government debt for five years rose to $810,000, up $10,000, according to data provider CMA. Brokers say that this price implies a 40% probability of default over the next five years.
While still well below the record of above $1 million hit at the end of June,a senior trader at an Athens bank called "concerning."
The levels of other non-core European countries also edged wider. CMA cited the cost of insuring Irish debt at $283,000, up $4,000 from Thursday, while the cost of Spanish debt insurance rose $1,000 to $221,000.
Investors are worried that Irish banks may require so much additional help that it will open new holes in the Irish government budget. Time pressure is posed by the expiration next month of the government's guarantee on bank liabilities.
This was reflected in the premium that the Irish government must pay for borrowing over equivalent German government bonds, which are the European benchmark. That rose to 2.99 percentage points on Friday, from 2.95 percentage points at Thursday's close, and up from 2.40 percentage points a week ago.
The yield premium on Greek 10-year government bonds rose to 8.23 percentage points over German debt from 8.09 percentage points on Thursday and 7.80 percentage points a week ago.
Spanish, Portuguese and Italian yield premiums also increased over Germany.
(The Wall Street Journal)