Debt Fears for Greece Increase Interest Rates

Steven Bobson, Europe & Americas Editor
April 20, 2011 /

Investors increased interest rates for Greek bonds as fears that the country will enter debt restructuring spread in the financial community on Tuesday, April 19, 2011.

On Tuesday, Greece raised €1.6 billion ($2.3 million) for money to be repaid in three months which required an increased yield of 4.1 percent compared to 3.8 percent in February.  The rate of return for the benchmark ten-year Greek bond also jumped to 14 percent, reaching an all-time high since the Eurozone was created.

The increase was caused by nervousness among investors about the possibility of them being repaid or being forced to accept a delay in repayment.

After hearing news from a German finance official and an unnamed European Commission source saying that debt restructuring was inevitable, the markets feared that the Greeks might default anytime in the present.

The EU spokesperson denied the statement and said that it is impossible for the European Commission to say such information because no discussion took place between the European authorities and the Greek government.

On the other hand, Germany’s Finance Ministry Technical Advisory Committee Chairman Clemens Fuest told Reuters that people should recognize the reality that the interest payments are breaking Greece.

In addition to the EU and Germany, other investors believe that there is a little likelihood that the restructuring will happen because for them,  it would be premature for the European Union to backtrack so quickly after having launched bail-outs of Greece and Ireland to avoid a restructuring,

Benefitting from the increasing rates is gold, which is currently experiencing soaring prices. In the London Bullion Market, its price rose from $1,493 to $1,494.02 an ounce on Monday, April 18, 2011. It even rose to $1,497 when Standard & Poor’s assessment of the US Treasury debt declined.

 

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