By Marius Zaharia
LONDON Tue Dec 9, 2014 4:41am EST
LONDON Dec 9 (Reuters) - Greece bond yields surged on Tuesday after the government brought forward a presidential vote in a political gamble that raised uncertainty over the country's transition out of its bailout.
The surprise decision, which came at a time when further European Central Bank-driven falls in euro zone borrowing costs looked all but certain, also drove yields on other lower-rated euro zone debt higher.
It could trigger early elections if Prime Minister Antonis Samaras fails to get his candidate chosen. Euro zone finance ministers earlier said they were willing to grant Greece's request for only a two-month extension to its bailout programme.
Greek 10-year yields were last 30 basis points higher at 7.64 percent in early trade, having hit their lowest since Oct. 22 at 7.27 percent on Monday.
Greece was the epicentre of the bloc's sovereign debt crisis which started in 2010 and culminated in 2012 when markets feared Athens was on the brink of leaving the currency union. In the past four years, Athens has been bailed out by its European partners and the International Monetary Fund to the tune of 240 billion euros.
Opinion polls show the leftist Syriza party, which has vowed to end cooperation with EU/IMF lenders and reverse the austerity cuts praised by bondholders, would win if early elections were held right now.
"Snap elections if they come does not look good for the government," said Jan von Gerich, chief fixed income analyst at Nordea in Helsinki.
"It could easily mean that their recovery could stop short once again and looking at Syriza's plans it is not out of the question at all that people would start doubting again that Greece has a future in the euro area."
Expectations of ECB government bond purchases early next year to boost the bloc's ultra-low inflation could not prevent a rise in other low-rated euro zone bond yields. Italian, Spanish and Portuguese yields were 4-5 basis points higher.
German 10-year Bund yields, which fall in times of uncertainty due to their perceived safe haven status, were down 2 bps at 0.70 percent.
Samaras needs the support of 180 lawmakers in the 300-seat chamber to win the vote, which will be held over three rounds with the first scheduled for next week and the last expected in late December.
He currently does not have that support, but some analysts say his move may indicate he is confident he can win over independent members of parliament to push his candidate through.
"Net/net, the fact that we will know two months earlier than expected whether or not the Greek political risk will materialise is not bad," Berenberg analysts said in a note, adding that the euro zone's bailout fund and the ECB's promise to do whatever it takes to save the euro should help the bloc deal with any "Greek accident."
"We hope that the Greek government has got it right: that ...(the) decision to call the presidential elections early indeed signals that the political risk will not materialise in Athens." (Reporting by Marius Zaharia, editing by John Stonestreet)
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