Wed Dec 10, 2014 4:49am EST
(Recasts, updates)
By John Geddie
LONDON Dec 10 (Reuters) - Greece's short-term borrowing costs jumped further above longer-term equivalents on Wednesday, a tell-tale sign that investors fear political uncertainty in Athens could put the country back on the road towards default.
The move follows a sharp sell-off on Tuesday after Greek Prime Minister Antonis Samaras brought forward a presidential vote, a gamble that if fails, could catapult the leftist anti-bailout Syriza party to power.
This is an outcome feared by bondholders who prefer pro-business governments that stick to the rigours of the IMF/EU bailout programme.
Yields on Greek three-year bonds shot up more than 100 basis points to 9.3 percent, the highest level since the bonds were issued back in July, and above equivalent 10-year yields which rose 15 basis points to 8.22 percent.
"This inversion tells you that there is concerns about further potential debt writedowns, and that is a function of minds being focused on Syriza which would no doubt push hard for such a policy," said Rabobank strategist Lyn Graham-Taylor.
Greece agreed a debt swap deal with its creditors in 2012 in exchange for receiving the second tranche of its 240 billion euro bailout.
Most of its outstanding debt - which is around 175 percent of GDP - is held by these official creditors, but analysts say this may not prevent private investors from escaping future debt restructurings.
Greece has sold two new bonds via capital markets in 2014, a five-year in April and the three-year in July.
Finance ministers of the 18 euro zone countries, known together as the Eurogroup, on Monday supported a two-month technical extension of Greece's bailout programme and the granting of a precautionary credit line for Athens afterwards.
The EU's economics chief also said late on Tuesday Samaras' decision to bring forward the vote showed he was confident he could win.
But the political uncertainty has shaken markets. If Samaras fails to secure victory for his presidential candidate, snap national elections could be called that Syriza would likely win.
Athens General Index of Greek stocks opening down 3.1 percent, extending losses after its biggest daily fall since 1987 on Tuesday.
Other low-rated euro zone bond markets were also hit by Greek nerves, as tumbling oil prices and weak Chinese data weighing on the bloc's economic outlook.
Portugal's 10-year yields rose 6 bps to 2.91 percent, while Italian and Spanish equivalents rose 3 bps to 2.05 and 1.85 percent.
German bonds - which fall in times of uncertainty as investors seek refuge in top-rated assets, dipped 1 bps to a new record low of at 0.679 percent. (Reporting by John Geddie, editing by Jamie McGeever and Andrew Heavens)
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