Greek Bonds Tumble Amid Political Uncertainty

Greek Gaming Company Intralot Postpones Bond Sale

By ED BALLARD, TOMMY STUBBINGTON and SERENA RUFFONI

The Wall Street Journal

Greek government bond prices fell sharply in thin volumes Friday to their lowest level in two months amid renewed political uncertainty, with market jitters also forcing Greek gaming company Intralot to shelve a planned bond sale.

Markets already nervous about a potential unwinding of monetary stimulus by the U.S. Federal Reserve received another jolt Friday after Greece's junior coalition government partner said it will withdraw from the government's cabinet, after a deadlock over the shutdown of the state broadcaster.

The International Monetary Fund also warned that it could suspend aid payments to Greece as early as July if Greece fails to complete a review of its finances.

Greek assets became more desirable in recent months because of the trillions in liquidity poured into financial markets by major central banks, the European Central Bank's commitment last year to do whatever it takes to save the euro and relative political stability in Greece. Greek companies, such as Intralot, were spurred to seek funds overseas as their cost of borrowing became once again affordable.

"Greek bonds are under pressure on the back of concerns that the IMF is considering withholding aid unless the funding gap is closed," said Richard McGuire, senior fixed-income strategist at Rabobank International.

"Unless that is closed, Greece will not able to fund itself beyond July. We've been here before, it's the constant brinksmanship that's a familiar refrain, but this time it seems a little more serious with the political backdrop."

The yield on the 10-year Greek government bond rose 0.60 percentage point from Thursday's close to 11.07%, having hit a two-month peak of 11.34% earlier Friday. The price of the bond fell to €53.43 ($70.63).

The slump in Greek government bonds also prompted Intralot to postpone a planned €300 million sale of five-year debt.

Intralot had sought to become the latest Greek borrower to tap the bond market this year as funding costs had become less onerous and investors grew more confident to invest in the country.

Other Greek companies that have issued bonds this year have also seen their yields climb sharply this week.

Hellenic Telecommunications Organization SA, or OTE, saw its 7.875% five-year bond yield surge to 8.02% in two days, according to Tradeweb.

Greek bonds now fall under the emerging-market portfolios for many investors following the cut in the country's debt rating to sub-investment grade.

The sharp slide in Greek government bonds, despite more mellow trading conditions in Italian and Spanish bonds, also revived market attention in a tender offer announced by U.S. based Japonica Partners for up to €2.9 billion ($3.8 billion) in face value of bonds issued by Greece in 2012.

According to Japonica's announcement, the minimum price at tender has been set at 45 cents to the euro of face value, with the tender offer covering bonds maturing between 2023 and 2033. Many of these bonds are now trading below the minimum purchase price, increasing the appeal of taking part in the tender offer, which closes in early July.

"I don't think the market is currently trading on the Japonica offer," said Colm McDonagh, head of emerging markets fixed income at Insight Investment, which currently manages just over £250 billion ($387.73 billion) in assets globally. "People need more clarity on what they're trying to do."

Mr. McDonagh still holds a small number of Greek government bonds, but sold most of its holding ahead of the recent market moves after they performed strongly earlier in the year.

After the recent selloff, prices are "getting back to the point where we would find Greek bonds interesting again," Mr. McDonagh said.

Japonica wasn't immediately available to comment on the latest moves in Greek government bonds.

—Ben Edwards in London, Thomas Catan in Washington and Nektaria Stamouli in Athens contributed to this article.

Write to Tommy Stubbington at tommy.stubbington@dowjones.com and Serena Ruffoni at serena.ruffoni@wsj.com