LONDON - Greek two-year yields rose above 100 percent for the first time after European leaders cut off aid to the nation until it holds a referendum next month on its bailout that will determine whether it stays in the eurozone.

The extra yield investors demand to hold 10-year Italian and French debt instead of similar-maturity bunds widened to euro-era records. Spain and France are scheduled to auction debt on Thursday.

"If it was only about Greece then things would still be controllable, but this is really about the contagion impact on other euro members and in particular Italy," said Elwin de Groot, senior market economist at Rabobank Nederland. "The market doesn't want to wait any longer. It wants to see quick results."

The two-year Greek yield jumped 971 basis points, or 9.71 percentage points, to 106.40 percent at 9:20 am London time, the most since 1998.

The rate on the Greek bond maturing in October 2022 climbed 10 basis points to 25.56 percent.

"You don't have to look at the yield, only the price," said Alessandro Giansanti, a senior interest-rate strategist at ING Groep NV in Amsterdam. "What the market does when you have a distressed situation is look at the price - that's what investors think they will get in a restructuring."

Crisis talks ended in Cannes on Wednesday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance to Greece and warning it will lose all European aid if the nation votes against a bailout package agreed on last week.

The 10-year German bund yield was little changed at 1.83 percent. The rate dropped to 1.73 percent on Monday, the lowest since Oct 5. The two-year yield was unchanged at 0.42 percent.

Italian 10-year yields rose 14 basis points to 6.33 percent, after climbing to 6.40 percent. That difference in yield with German securities widened to as much as 462 basis points. The spread between French and German 10-year securities reached a euro-era record 137 basis points.

KfW Group, Germany's state-owned development bank, wrote down its Greek government debt holdings to 45 percent of their nominal value, Handelsblatt reported, citing unidentified people familiar with the matter. ING Groep NV wrote down its holdings of Greece's sovereign securities to market value as of Sept 30, representing a reduction of about 60 percent, it said on Thursday.

Spain is scheduled to sell government debt maturing in 2014 and 2016 on Thursday, while France plans to auction 2017, 2021 and 2026 bonds. France last sold 10-year bonds on Oct 6 at an average yield of 2.72 percent.

German bonds have returned 8.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek debt lost 46.9 percent.

Bloomberg News

(China Daily 11/04/2011 page17)