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 After weeks of minor ebbs and flows on the stop-start negotiations,
bond markets across the euro zone signaled alarm that a deal may not
be reached by mid-year, when Athens must repay 1.6 billion euros
($1.8 billion) to the International Monetary Fund.
The premium investors demand to hold Spanish, Italian and Portuguese
government bonds over low-risk German Bunds hit 2015 highs, with the
10-year yield gap between Spanish and German debt at its widest
since August.
Shares in Europe and Asia fell, led lower by banks.
The euro weakened against the dollar, pressured also by investor
anxiety ahead of a U.S. Federal Reserve interest rate-setting
meeting later this week.
U.S. stock index futures <ESc1> were down 0.4 percent, suggesting
Wall Street would extend Friday's declines, which were blamed on
worries over Greece and the Fed meeting.
Talks on Sunday between Greece and its creditors, described as a
"last attempt" to bridge their differences, broke up after less than
an hour.
European Union officials said Athens had offered no new concessions
to secure the funding it needs. Athens said it would not give in to
demands for more pension and wage cuts.
Greece has already been bailed out twice and many banks have cut
their exposure to the country while euro zone authorities have put
in place mechanisms to limit contagion. However, the prospect of
default and the possibility of Athens leaving the euro weighed
heavily on sentiment on Monday.
"It's clear that each day that passes we come closer to a potential
Greek default and this risk aversion is a natural reaction by the
market," said KBC strategist Mathias van der Jeugt.
The pan-European FTSEurofirst 300 stock index fell 1 percent and a
gauge of European stock market volatility hit its highest since Jan.
22, days before the left-wing Syriza party of Greek Prime Minister
Alexis Tsipras won power in a parliamentary election.
Banks in Spain, Italy and Portugal were among the big losers, with
Italy's Banco Monte dei Paschi down 4.1 percent and Spain's Banco
Popular and Portuguese Millennium bcp both down 3.8 percent.
Athens stocks fell 4.4 percent while the exporter-heavy German DAX
index lost 1.5 percent.
"Sentiment remains negative with rallies likely to be sold until
there is some positive news (on Greece)," said Peregrine & Black
senior sales trader Markus Huber.
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MSCI's broadest index of Asia-Pacific shares outside Japan dropped
0.9 percent. Tokyo's Nikkei 225 index fell 0.1 percent, with traders
citing concern over Greece and the Fed meeting, which ends on
Wednesday.
Solid U.S. data last week reinforced expectations that the Fed is on
track to raise rates, possibly as soon as September. Investors will
focus on any changes in Fed Chair Janet Yellen's language in a
post-meeting news conference.
EURO DOWN
The euro was down 0.3 percent at $1.1222, recovering from a low of
$1.1188. Euro/dollar one-month volatility, a gauge of how sharp
swings in the exchange rate are expected to be, hit its highest for
3-1/2 years.
Euro weakness helped push the dollar 0.3 percent higher against a
basket of major currencies.
The yen was down 0.2 percent at 123.60 per dollar.
Safe-haven German 10-year bond yields fell 2.3 basis points to 0.82
percent while yields on both Italian and Spanish 10-year bonds rose
more than 11 bps. Greek 10-year yields rose 92 bps to 12.75 percent,
still a percentage point below late-April peaks.
Oil and gold fell as the dollar firmed. Brent crude lost $1 a barrel
to $62.84. Gold fell half a percent to $1,175.26 an ounce.
(Additonal reporting by Jamie McGeever, Emelia Sithole-Matarise and
Sudip Kar-Gupta in London, Lisa Twaronite in Tokyo; editing by John
Stonestreet)
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