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Fasdal: QE may not protect Europe from Greece for much longer

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The Greek bond market is showing signs of stress as talks between Greece and its creditors enter yet another critical phase. Saxo Bank’s Head of Fixed Income Simon Fasdal says it will be crunch time for Greece on April 24 when it meets with other eurozone nations for make-or-break talks on how to settle its debt.

Short term Greek bonds are trading at around 25% and 10-year government bonds around 12%. Both indications of high levels of stress. In addition liquidity in the Greek bond market is low.

Standard & Poor's downgraded Greek debt further into junk territory on Tuesday, warning the country could default if a deal with its EU creditors is not reached by mid-May.

So far there has not been any serious contagion from the Greek crisis into other European bond markets, mainly due to the ECB’s trillion euro QE programme providing a buffer and a positive outlook for the rest of the euro area. But that could all change if Greece is forced to leave the euro, says Simon Fasdal, and the first signs of contagion are likely to appear in bond markets in Portugal, Spain and Italy.

Headlines in the run-up to the April 24th Eurogroup meeting are expected to have a "serious impact" on markets with analysts watching and waiting for increased volatility in equity trading.