By Josie Cox
Talks between Greece and its European creditors collapsed over
the weekend, sending shock waves through global markets Monday.
By mid afternoon, the Stoxx Europe 600 index was trading around
1.5% lower, weighed down by a 1.9% slide on Germany's DAX-30. In
the U.S. the S&P 500 was 0.9% lower.
Athens' main stock exchange was slightly more than 5% lower on
the day, led by a steep decline in banking stocks.
The falls came after European officials on Sunday dismissed the
Greek government's latest proposals, describing them as "vague and
repetitive." Last week the International Monetary Fund pulled out
of the Greek bailout talks, citing lack of progress, already making
markets jittery.
"We have always argued that a Greek deal would only occur at one
minute to midnight," Rabobank rates strategists wrote in a note.
"Yet it now looks like 23:58 and counting."
Shares in Greece's Alpha Bank AE, Eurobank Ergasias SA, National
Bank of Greece SA and Piraeus Bank SA were all down between 7.5%
and 14% by mid afternoon. Monday's drop means they have now all
declined more than 20% since the start of June and between 35% and
65% since the start of the year.
Greek bonds also tumbled, sending the yield on the country's
two-year debt up to almost 29%, close to 3 percentage points higher
on the day and at a level last seen in April. Yields rise as bond
prices fall.
Concerns about Greece also hit the euro, which was trading
around 0.3% lower Monday, at around $1.123 to the buck. Several
strategists said that the currency would likely remain under
pressure until a resolution is found.
"Creditors are getting tired with the negotiations," said Eirini
Tsekeridou, an analyst at Swiss private bank Julius Baer. Ian
Williams, economist and strategist at brokerage Peel Hunt, said
that hopes for a compromise are diminishing, while strategists at
BNP Paribas wrote in a note that "the risk of unfavorable
scenarios, such as a default, has undoubtedly risen."
Attention this week will be on Thursday's Eurogroup meeting,
ahead of a Brussels summit on June 25, and a hefty Greek debt
repayment deadline on June 30.
Credit Suisse economists said Thursday's meeting would likely be
"one of the last chances to rubber stamp an agreement between
Greece and its creditors."
"With the Greek government still living in its own world, hopes
for a solution are evaporating," said Demetrios Efstathiou, a
senior economist at Standard Bank. He added, however, that he still
thinks an agreement will be reached, but only "at the very last
minute" and "not a minute earlier."
Back in debt markets, the yield on the 10-year German government
bond was around 0.03 percentage point lower at around 0.81% by
midday.
Yields on Spanish and Italian 10-year debt, which some
strategists say could be most affected by a Greek default, were
higher at around 2.36% and 2.32% respectively.
"From a market perspective the concern is that if Greece was to
default and/or exit, then it might encourage others to do the
same," said Gary Jenkins, a credit strategist at London-based asset
manager LNG Capital. That, he said, "puts the entire eurozone
project at risk of collapse."
In Asia, the Nikkei ended Monday marginally lower, marking its
fifth loss in the past seven sessions, with strategists also citing
tension over unfruitful Greek debt talks as well as fears over the
implications of a U.S. interest rate increase in coming months.
Write to Josie Cox at josie.cox@wsj.com
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