Greek govt bonds fall as ECB restricts access to funds for financial institutions

Frankfurt

GREECE'S government bonds tumbled with bank debt and equities as the European Central Bank (ECB) jolted markets with its decision to restrict access to funding lines for the nation's financial institutions. Greek assets had already slumped after the anti-austerity Syriza party triumphed at Jan 25 elections.

Now, the ECB's decision will raise financing costs for the nation's lenders, adding to pressure on the newly elected government to moderate its policies or risk sterner measures that may jeopardise Greece's membership of the 19-nation currency bloc.

"This is clearly a warning shot," said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt.

Greek three-year note yields increased 115 basis points, or 1.15 percentage points, to 17.47 per cent at 1.41 pm in London. The ASE Index of stocks in Athens dropped 3.6 per cent, with a gauge of lenders slumping 7.1 per cent, while the bonds of Greece's four biggest banks also declined.

The cost of insuring against losses on Greek sovereign debt jumped and credit-default swaps now signal there's a 71.5 per cent chance the nation will default within the next five years. The yield on Greek three-year notes surged from last year's low of 3.07 per cent set in August

The first direct talks between Greece and Germany since a new anti-bailout government took power in Athens last week yielded no agreement on how to narrow their differences. "We had long and intensive discussions, but we were not in complete agreement," Mr Schaeuble told a joint news conference after meeting Mr Varoufakis for the first time.

The meeting between the two men was the final leg of a whistlestop diplomacy tour by Mr Varoufakis to drum up support for Athens' planned renegotiation of its massive international bailout. But with both men conceding that there appeared to be little common ground, the meeting seemed to be anything but a success.

"We agreed to disagree," Mr Schaeuble said, while Mr Varoufakis retorted: "We didn't reach an agreement. It was never on the cards that we would. We even didn't agree to disagree from where I'm standing."

But both Mr Schaeuble and Mr Varoufakis insisted that a debt write-down or "haircut" was not an issue at present. "We agreed - if I understood correctly - that the issue of a debt haircut is not relevant at present," Mr Schaeuble said.

"We didn't discuss a haircut," Mr Varoufakis agreed, and added that the new government in Athens would do "everything in our power to avoid any default". BLOOMBERG, AFP