Greek 2-Year Bond Yields March Higher

LONDON -- Greek two-year bond yields continue to march higher Wednesday, rising back above levels seen prior to the July 21 emergency summit of European Union leaders, as investors fret about the slumping Greek economy, a stalled deficit-reduction plan and unravelling bailout package.
At 1045 GMT, Greek two-year bonds were yielding 39.72%, according to Tradeweb, over 190 basis points wider against Germany, and surpassing the recent peak of 39.38% seen two days before EU leaders agreed a second EUR110 billion rescue deal.
One trader said investors, who had bought Greek debt after the European Central Bank resumed
buying sovereign bonds earlier this month hoping that prices would rise, were now trying to sell.
However, many dealers are reluctant to show bids for Greek bonds, and bid- offer spreads are very wide, with no meaningful trading happening, this trader said.
Greece has been buffeted by more bad news in recent days. Senior government officials conceded last week that the country's economy could shrink by as much as 5.2% this year, that this could push the budget deficit to around 8%-8.5% of gross domestic product, and that the economy could continue shrinking next year.
Meanwhile, Finland's demands for collateral for its share of the Greek bailout are seen as destabilising the whole package.
"The price action for Greece in the past few days tells us that the recent Greek rescue plan...is not enough to appease markets," said Padhraic Garvey, strategist at ING, in a note Wednesday.
"Default risk is on the rise," he said.
-By Mark Brown and Nick Cawley, Dow Jones Newswires;
http://www.nasdaq.com/