Greek 10-year bonds slid, sending the yield premium investors demand to hold the debt instead of German bunds to the highest since the euro's debut, on concern the government will struggle to redress its deficit.

The difference in yield, or spread, between the securities widened to more than 301 basis points as of 9:22 a.m. in London, the most since the introduction of the common currency in 1999.

The 10-year Greek bond yield climbed as much as 9 basis points to 6.25 percent, the highest since Jan. 26, 2009.

"There's a lack of confidence and that's being pounced on," said Peter Chatwell, a fixed-income strategist at Calyon, the investment-banking unit of Credit Agricole SA. "Until Greece is able to issue debt at a reasonable level and clear a big chunk of their 2010 funding requirement, then there will still be a lot of pressure on spreads."

Greek Finance Minister George Papaconstantinou denied a report the European Union was preparing a loan to help the country tackle the EU'S biggest budget deficit and said the government wasn't expecting anyone to come to the rescue.

The report about an EU loan is "not valid," he said when asked about the story in Athens today.

The EuropeanVoice reported today that EU officials are looking into a possible "heavily conditioned" loan for Greece to stanch its fiscal crisis and stop the country from seeking aid from the International Monetary Fund. IMF Managing Director Dominique Strauss-Kahn said yesterday in Hong Kong that Greece's fiscal situation is "a serious problem" for the region.

Greece's credit was lowered by Standard & Poor's, Moody's Investors Service and Fitch Ratings last month on concern Prime Minister George Papandreou will struggle to reduce the budget deficit, which was 12.7 percent of gross domestic product last year.

Eoin Treacy's view This additional article by Natalie Weeks and Maria Petrakis also for Bloomberg looks more at how Greece might eventually be supported in the event of a default. These two articles highlight the extent to which Greece has fallen out of favour with investors. The country's CDS spread hit a new high last week, contrasting sharply with the performance of most other countries. This spread has been rallying aggressively since November and a downward dynamic would be required to check the advance beyond a brief pause. A sustained move below 250 basis points would be needed to indicate a medium-term change in sentiment. (Also see Comment of the Day on November 26th)

The Greek 10yr bond spread over the German 10yr is currently testing the early 2009 highs near 300 basis points and a downward dynamic would be required to question potential for an upward break. Investors will remember that during the panic in Q3 2008 a strategy among a certain group of speculators was to take a large short position in a company's stock then aggressively bid up the price of CDS on that company's debt. In some cases this exaggerated the potential for default, contributed to the loss of investor confidence and was at least in part to blame for the speed and extent of the sell-off.

The above charts demonstrate that Greece's CDS spread is leading the government bond spread. No one questions whether Greece has massive economic and fiscal problems which have to be resolved without recourse to currency devaluation. The problems are real and the downtrends in Greek assets remain consistent which suggests that this decline is not over. However, we also need to be aware of the difficulties which can arise from focusing on one particular indicator of credit worthiness, such as CDS spreads because that market can be and has been manipulated.

While monitoring the trend, we also need to script what an eventual ending might look like. Only two outcomes are likely. Either the Greek government will succeed in implementing their proposed tightening measures or they will fail. The former would probably result in government bond spreads topping out and stabilising above the pre-crisis norm. The latter would likely result in a crisis and some form of rescue by the EU, akin to a Federal bailout of a state in the USA.

In absolute terms, Greek 10yr yields have been trending reasonably consistently higher since 2005 and are currently testing the early 2009 high near 6%. A sustained move below 5.5% would be required to question current scope for further upside.

The Athens Stock Exchange Index hit a medium-term high in October and has now broken the progression of rising lows since March 2009, breaking downwards from the most recent short-term range this week. A sustained move back above 2400 would be required to question potential for further lower to lateral ranging.