Warning Signals in Greek Bonds Amid Middle East Crisis

Yields on Greek government bonds rose as debt markets opened on Monday (June 16, 2025), amid a broader climate of volatility due to the crisis in the Middle East and mild concerns regarding interest rate trends in the Eurozone. Although the change in yields for Greek bonds is not dramatic, the fact that it’s occurring in long-term issues signals a notable shift in investor sentiment, driven by instability from tensions in the Middle East. This indicates that markets either anticipate higher inflation in the future or have fiscal concerns. It’s important to note that Greece remains the country with the highest debt-to-GDP ratio in Europe. Specifically, the yield on the 10-year Greek bond strengthened on Monday, increasing by approximately six basis points compared to June 13 levels. A similar trend was observed in the 20-year bond, where yields climbed to 3.78% from 3.71%, according to the latest data from the Bank of Greece. However, these increases occurred in an international context where long-term securities from other countries also saw upward movement, confirming broader market repositioning in anticipation of inflationary pressures linked to the Middle East conflict. In Europe, yields on the German bund increased, alongside comparable movements in Italian, French, and Spanish bonds. Statements from ECB officials further influenced European yield trends, leaving open the possibility of delaying the next interest rate cut due to insufficient disinflation. While the Greek bond market has recently maintained historically low spreads against German titles, recent developments suggest a more delicate balance. Any sustained or widened yield increase directly impacts public borrowing costs. Generally, bond market trends remain fluid as global risks, particularly those tied to Middle Eastern developments, can easily spill over into sovereign debt portfolios. As we approach the autumn ECB meetings, expectations regarding monetary policy will increasingly influence the bond market. Despite recent changes being mild in absolute terms, they serve as a useful warning signal for borrowing cost directions if the crisis persists.