The premium investors demand to buy Greek, Portuguese and Irish government debt rather than German benchmarks rose on Tuesday after euro zone states urged Greece to announce more deficit-control steps by mid-March if needed. The spread widening came just ahead of the German ZEW investor sentiment survey which helped pare 10-year Bund futures gains by a few ticks.
The cost of insuring Greek government bonds against default also advanced, to 369,800 euros per 10 million euros of exposure from 354,300 euros late on Monday, according to 5-year credit default swaps from monitor CMA Datavision. The 10-year Greek/German bond yield spread widened by 30 basis points on the day to 335 bps versus 305 basis points at Monday's settlement close, and was at its widest since February 9.
There was little trade in Greek bonds on Monday due to a public holiday in Greece. The equivalent Portuguese spread widened 21 bps on the day to 143 bps, while the Irish equivalent spread over euro zone benchmark Bunds widened by 8 bps to 153 bps ahead of the results of auctions of 2014 and 2020 debt.
Both spreads were at their widest since February 10. Ten-year Italian BTPs edged three bps wider to 88 bps, also their largest gap since February 10. Portuguese and Italian CDS were little changed, CMA said. Euro zone states urged Greece on Monday to take further steps to control its budget but did not elaborate on last week's pledge to defend the country if market pressures spin out of control.
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