Greek selloff shows rush for exit recalling crisis

David Goodman & Eshe Nelson

Bondholders in Europe just got a wakeup call.

After a four-month rally in euro-region debt, yields on Italian and Spanish bonds had their biggest one-day jump in almost a year last week as a selloff that started in Greece spread. With bids evaporating and prices sliding, traders poured into derivatives as they rushed to protect against losses. Italy’s and Spain’s bonds extended that slump today.

Even with borrowing costs from Ireland to Italy near record lows, the sudden price swing shows they’re not immune to the bouts of volatility that characterized the four-year debt crisis. The risk is that speculative traders, who bought debt on the assumption the European Central Bank would support the market, may try to flee at the same time if the outlook darkens.

“You only know how wide the door to the exit is when there are a few of you trying to push through at the same time,” Michael Riddell, a London-based fund manager at M&G Group Plc, which oversees the equivalent of $417 billion, said on May 16. “I don’t think liquidity has been that great in peripherals at any stage.”

Greece’s 2 percent bond maturing in February 2024 dropped 3.095, or 30.95 euros per 1,000-euro ($1,372) face amount, to 75.3 on May 15, the biggest outright decline in price since the securities were issued in March 2012.

Yield Jump

Yields on the 10-year debt surged 51 basis points, or 0.51 percentage point, to 6.81 percent, the biggest jump since June 2013. They extended the move the following day to leave the rate at 6.86 percent at the end of last week, the highest close since March 27.

Prices plunged in the wake of opinion polls suggesting the nation’s governing coalition was losing support before local...