New fears over Greece send shockwaves through debt markets

Athens is rapidly running short of cash and its eurozone partners are holding out on making a bailout payment

Athens is attempting to negotiate a better deal with its creditor nations in the European Union (Getty Images)

Financial markets have been shaken up by renewed fears of a Greek sovereign default after reports that Athens had made a private request to delay a repayment to the International Monetary Fund.

Greek three-year bond yields leapt 200 basis points to 26.44 per cent after reports of the request broke. Meanwhile the country’s effective 10-year borrowing costs rose 60 points to 12.5 per cent – underscoring concerns that the country will be unable to meet its near-term liabilities, and could yet crash out of the single currency.

The news also helped drive safety-seeking investors further into German Bunds, with the yields on 10-year German sovereign debt falling 2 basis points to 0.085 per cent. The nine-year Bund yield turned negative at one point in trading.

Philippe Gudin at Barclays said: “We believe that the probability of a Greek exit is higher now than it ever was.”

Athens is rapidly running short of cash and its eurozone partners are holding out on making a €7.2bn (£5.2bn) bailout payment until they see convincing evidence that the government, led by Alexis Tsipras, is serious about implementing far-reaching structural reforms. Athens managed to make a €450m repayment to the IMF earlier this month but another €800m payment is due on 12 May.

There are also substantial payments due to the European Central Bank in July and August. The Greek Finance Minister, Yanis Varoufakis, denied the reports that it had informally requested a delay as “downright false”. But the IMF’s managing director, Christine Lagarde, insisted that there could be no leeway in any case. “Payment delays have not been granted by the board of the IMF in 30 years” she told reporters in Washington at the Fund’s spring meeting.

Eurozone leaders are due to discuss releasing Greece’s funds at a meeting in Riga next Friday. But the German Finance Minister, Wolfgang Schauble, earlier this week suggested that there was little chance of a deal by then. “Nobody expects that there will be a solution” he said, speaking in New York.

There was another blow for Athens this week when the credit rating agency Standard & Poor’s downgraded its sovereign debt to CCC+ with a negative outlook – further into junk status. S&P cited the lack of progress in Athens’ negotiations with its eurozone partners.

Despite the set backs Mr Tsipras told Reuters he was “firmly optimistic” of reach an agreement with eurozone creditors by the end of April. In a statement, the Greek Prime Minister said several points of agreement had been found since talks first started, especially on areas such as tax collection, corruption and distributing the tax burden. However, he did acknowledge that the two sides disagreed on major issues ranging from labour rules, pension reform, a hike in value-added taxes and privatisations.

“Despite the cacophony and erratic leaks and statements in recent days from the other side, I remain firmly optimistic that there will be an agreement by the end of the month” Mr Tsipras said.

Ten-year German Bund yields have fallen rapidly from 0.5 per cent at the start of this year, having been pulled down by the European Central Bank’s bond buying programme – designed to pull the single currency area out of deflation.