Possible QE delay hits Greek bonds
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