BOND markets remained fragile yesterday as the Greek deal pushed through the final stages in Athens and Europe.
Irish government bonds were especially weak. The yield, or cost of borrowing, on two-year Irish bonds hit a record 12.7pc. That's up a half a percent yesterday. Irish 10-year bonds were also weaker. Greek and Portuguese debt held up better, but both are still close to their all-time high.
Markets remained weak despite some relief after the Greek government survived a confidence vote on Wednesday, but there were signs of renewed efforts to tie down the Greek deal.
Governments in Germany, France and the Netherlands called in banks and insurance companies headquartered in their countries to discuss a "voluntary" role in the proposed new Greek bailout.
It comes after the Greek government won its confidence vote on Tuesday night. The Greek parliament still has to approve revised budget measures and privatisation plans.
However, Atonis Samaras, Greece's opposition leader, last night said his party would vote against the government's latest round of austerity measures, dashing the hopes of foreign creditors that the nation's political classes would unite in a last-ditch effort to prevent a sovereign debt default.
"They are asking me to support the same kind of medicine for someone who is dying from that medicine. I will not do it," Mr Samaras, said.
The socialist government plans to enact a €28bn package of spending cuts and tax increases next week in order to secure the next €12bn tranche of a €110bn international loan which is needed to avoid default.
Eurozone finance ministers agreed a new bailout for Greece will include an element of private sector involvement, but no move to force losses on lenders. Ministers hope to persuade lenders that hold around €30bn of Greek government bonds to re-lend on broadly similar terms as the debt falls due.
Insisting that the deal is voluntary is aimed at preventing ratings agencies from being able to call the deal a default, not out of sympathy for the banks. Large banks in the core European countries have already been sounded out on the process.
They will push for better terms or improved interest for remaining lenders to Greece but most senior bankers will have no illusion but that ministers will ultimately call the shots.
Big banks depend on their home governments for support, explicit or through bailouts. Governments are also the biggest customers for many financial institutions.
One unknown is whether shareholders in some banks could try to block the plan, if it can be proven to undermine their investment.
The plan is being referred to as a second "Vienna Initiative," after a deal along the same lines back in 2009. That deal helped contain a crisis in Hungary and Romania.
German bankers were called to a meeting with Finance Ministry officials yesterday in Frankfurt. The full details of the Greek bailout, including agreement with the banking sector, has to be agreed on July 3.
Meanwhile, the weaker market for the debt of peripheral euro countries posed no difficulty for the European Financial Stability Facility (EFSF) when it sold bonds yesterday.
The EFSF sold a €3bn bond to investors in just two hours yesterday. Strong demand pushed the yield on the five-year bonds down to 2.825pc.
Proceeds of the deal will go to support the Portugal bailout. In a statement the EFSF said €7bn of orders were placed for the €3bn of bonds received in less than two hours, including €550m from Japan's government, according to the EFSF statement.
The facility also reported strong demand from Asia. That outside interest will be seen as an endorsement of the euro and the wider euro area, particularly in such a volatile week.