Spot the bailout risk.

Greece’s short-term bond yields are well on course to suffer their worst weekly sell-off in a year as investors take a dim view of the state of the country’s bailout talks with an eye to a major summer debt repayments crunch.

Athens’ two-year bond yield maturing in April 2019 has hit its highest level in eight months today, gaining more than 1.7 per cent since Monday, when the IMF voiced fresh concerns about the country’s debt trajectory and growth prospects.

Both the EU and Athens have come back fighting against the IMF’s “overly pessimistic” calculations on Greece’s rising debt levels and stuck by claims the country can meet a 3.5 per cent debt to GDP surplus until 2028.

But the IMF, which is due to make a decision on its participation in the Greek programme later this month, has dug its heels in today (read more here).

Investors have taken fright at the escalating bailout tensions, pushing two-year yields to the highest level since June 2016. The sell off in short-term debt reflects growing anxiety over Greece’s precarious short-term liquidity position.

The country faces a €1.4bn bond repayment to the European Central Bank in April and a heftier €7bn obligation to its creditors in July. Greece will need a fresh injection of bailout cash to avoid defaulting on its creditors, according to analysts (see chart below).

Chart via Bloombeg

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