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Bond Investors Bite Their Nails as Greece Votes in Euro Elections

Stocks in this article: GREK

NEW YORK (TheStreet) -- Investors are looking to Greece this week as the country prepares for its second round of voting in local elections on May 25. Up for grabs are positions in Greece's 325 municipalities in 13 regions. Voters will simultaneously also select their candidates for the European Parliament.

The leading two candidates in every region's initial elections go to a final vote on May 25 to pick a winner with a clear majority of over 50%. The elections painted a disjointed picture of the country's political affiliations. A disillusioned and austerity-weary public punished the main parties by picking satellite parties and relative newcomers.

The Global X Greece ETF (GREK) closed at $21.33 on Thursday, down 5.3% year to date.

Speaking to Bloomberg, Loukas Tsoukalis, president of the Hellenic Foundation for European and Foreign Policy, said of the first round, "Personalities won over political parties, as independent candidates are ahead in three of the country's largest cities. The results show the fragmentation of Greece's political landscape."

In the Attica region of Greece, where Athens is located, the New Democracy party suffered heavy losses and failed to secure a place in the second round of voting.

Adding to the threat of national and European instability was the outcome of voting for anti-bailout party Syriza, which managed to get a candidate through for the second round of Athens' mayoral seat, and neo-Nazi party Golden Dawn. The party exceeded expectations by securing 16% of the popular vote in Athens, tripling their previous total in 2012 and raising the prospect of the party securing seats in the European parliamentary elections.

Such a move would likely prove problematic to the country's recent tentative steps back into the bond market.

Just last month, Greece made its return to the international bond market after a four-year hiatus. While the initial launch was a success and was hailed as proof of the country's economic recovery, yields have begun creeping up to nearly 7% after a pre-launch low of just below 6%, as the markets wait to see what happens next.

The country has already submitted to a 70% haircut for bond interest rates in the past, an economy that has shrunk some 23% since 2008, and a relentlessly growing unemployment rate. 

It's paramount for Greece to assure investors of its stability.

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