The Greek central bank would pay a lower interest rate on 30-year debt than on 10-year debt, if issued today. Usually, longer-term debt commands higher interest rates, as investors want compensation for the additional risk of holding the debt for longer.
Demand for shorter-dated debt provides an explanation. The shorter-dated end of the curve (left hand side) has moved up far more than the longer-term end (right hand side).
Most outstanding Greek debt is due to expire (and need refinancing) within the next ten years (see left).
In 2009, this partly negative yield curve was rare. So far this year, it has been more common. The most inverted curve occurred around February 8, when an IMF bail-out was mooted. Yields since then have dropped for all terms, only to rise again – extremely sharply, and to record levels – since Easter. Although a bail-out plan has been agreed in principle between the EU and IMF, there is disagreement over how much Athens should pay for help. Most nations agree on a rate of 4-4.5 per cent for debt, but Germany says market rates are appropriate.
NB. All data taken from Reuters’ composite benchmark bond series.