Global bond market turmoil raises alarm for European banks and Greek finance

In a three-day “thriller” for financial markets, yields on sovereign bonds across the United States, Japan, Germany, France, Italy and the United Kingdom climbed to levels not seen in many years, triggering a sell-off in long-dated government debt. The pressure quickly spilled over to European equities, with the STOXX Europe 600 Banks index posting its steepest daily drop since March and bank shares such as HSBC, Barclays and Lloyds falling over four percent.

Credit-default swap spreads for banks like BNP Paribas, Santander and UniCredit rose sharply, indicating heightened perceived risk. At the same time, Moody’s revised its assessment of Greek credit conditions downward and S&P identified three urgent risk factors for Greek banks, reflecting their sizable holdings of sovereign bonds whose values are eroding as yields rise. Eurostat’s provisional data showed inflation accelerating in the euro zone and even faster in Greece, adding further pressure on central banks and market expectations.