Greece tries to allay debt default fears as investors shun bonds

Investors continued to shun Greece debt today following its appeal to the International Monetary Fund for help , despite a warning that those betting on a Greek collapse would "lose their shirts". The yield on Greece's two-year government bonds jumped to over 13% this morning from 10.8% on Friday, in a sign that Greek debt is now seen as even riskier. The gap between the yield on Greece's 10-year bonds and their German equivalent leapt to 663 basis points – the most since February 1998 – and the cost of insuring Greek debt against default also rose. The euro also came under pressure, hitting a three-month low of 86.06p against the pound. And while shares in London clung onto most of their early gains , Greek bank shares fell by around 4% when trading began in Athens. Greek politicians had attempted to soothe fears in recent days, following confirmation the IMF will help organise a €45bn (£38.8bn) bailout. On Sunday, finance minister George Papaconstantinou insisted the rescue would be finalised within weeks , and warned traders speculating that Greece will default on its debt that "they will lose their shirts". But the details of the rescue are unclear, and there is also concern about whether other eurozone members will support it. Today, Volker Kauder, who chairs the Christian Democratic Union/Christian Social Union group in the German parliament, insisted any rescue plan for Greece had to protect the euro. "Firstly we need to check carefully that Greece is pressing ahead with its deficit cuts. It's not going to be handed over on a silver plate," Kauder told German television station ARD. "We'll have to help, but the conditions for that have not yet been met," he added. The German chancellor, Angela Merkel, is due to speak about the Greek crisis at 2pm BST. Greece needs to arrange a rescue deal quickly because €8.5bn of existing debt must be repaid in May. The negotiations with the IMF and the EU centre on the €45bn package, but analysts point out that this would only cover this year's shortfall. "A multi-year package of €90bn could provide Greece the breathing space to implement the fiscal adjustment," said analysts at Barclays Capital. The IMF is expected to force deep cuts in public spending and benefits, as well as demanding the sale of some state assets. But in a sign of the potential problems ahead, Greek dockworkers went on strike today in protest at new measures that open the country's ports to more foreign competition. The cost of insuring Portugal's debt against default also rose sharply this morning to a record high of 288 basis points. Analysts suggested that if Greece restructures its debt, other countries could follow suit in a "race to restructure" while markets are still receptive to the idea.