Pos­si­ble QE de­lay hits Greek bonds

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This month’s sharp rally in Greek gov­ern­ment bonds has gone into re­verse as early elec­tions in­crease un­cer­tainty over re­forms and lower the chances of the Euro­pean Cen­tral Bank com­ing back soon to buy the coun­try’s debt. Had the ECB started buy­ing bonds as its rules per­mit when Greece en­tered its third bailout pro­gram – it re­ceived the first tranche of funds on Thurs­day – it would have sent a strong mes­sage of sup­port for the eu­ro­zone’s most in­debted econ­omy, en­hanc­ing in­vestor con­fi­dence in the res­cue pro­ject. But Prime Min­is­ter Alexis Tsipras’s res­ig­na­tion and call for new elec­tion looks to have put that on hold. Some in­vestors, mostly hedge funds, had bought Greek bonds re­cently with the pos­si­bil­ity of ECB buy­ing in mind. That led to a fall in 10-year yields from nearly 20 per­cent to about 9.5 per- cent. But yesterday, yields were 83 ba­sis points higher on the day at 10.34 per­cent. Two-year yields were up one per­cent­age point at about 13 per­cent, still far from lev­els around 60 per­cent hit in July. The ECB has said it would buy only af­ter signs from Greece of “cred­i­ble im­ple­men­ta­tion” of the bailout pro­gram. The first progress re­port was ex­pected in Oc­to­ber. Un­der the rules of the ECB’s tril­lion-euro bond-pur­chase stim­u­lus plan, known as quan­ti­ta­tive eas­ing (QE), it can buy non-in­vest­ment grade debt if the coun­try is in a bailout and if the Cen­tral Bank deems im­ple­men­ta­tion to be cred­i­ble. “I don’t think the ECB will take the risk to give a rat­ing waiver be­fore [elec­tions]. There will be volatil­ity as al­ways on Greek bonds,” said Is­abelle Sanson of Natixis As­set Man­age­ment. “It could be a good po­lit­i­cal sig­nal if the ECB started to buy Greek bonds be­fore the re­view, but at the same time they have to be sure that the pro­gram will be... [fol­lowed] by the

Ex-Fi­nance Min­is­ter Yanis Varoufakis (pic­ture in Madrid in May) was told by his Ger­man coun­ter­part Wolf­gang Schaeu­ble that Greece did not have a place in the euro, Bild news­pa­per re­ported yesterday. Varoufakis is al­leged to have made the com­ment to a Ger­man film­maker who in­ter­viewed him on Thurs­day.

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