Here’s the full sentence for context: “In 2009, Greece’s budget deficit exceeded 15% of its GDP. Fear of default widened the 10-year bond spread and ultimately led to the collapse of Greece’s bond market.”
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First, you have to understand what a yield is. Let’s say I’m a country government, and I need to issue debt to finance my budget. I go to the market to say, “Hey, who wants to give me a bond for $1,000? I’m offering 5% coupon.” The market may say, “Sure, 5% sounds reasonable for a country of your risk. Here’s your $1,000.” Now, let’s say I’m Greece, and the market says, “Woah, you’re super risky, very good chance I don’t get paid back in full. I won’t give you your $1,000. However, I will give you $900 for that bond. To be clear, I give you $900 today, then you pay me 5% coupons and at the end of the bond’s term you give me the full $1,000 back.” And I’m desperate, so I take the deal. Even though the coupon is the same, the face value is the same the investor will now make a greater return (called a yield) on the bond due to the lower buy-in price (the actual yield number is calculated based on a standard formula). Now, if I’m the country this is a problem, as I now have to pay more money to be able to finance my government.
A bond spread is the difference in yield between two different bonds. The idea is to try and take out noise of the general capital market conditions/interest rates to capture the true market view of the asset. My guess is that the article is comparing 10-year Greek to 10-year Germany at the time, in other words Greek 10-year yield minus German 10-year yield, but they don’t actually show the spread, they just say the spread widened and then quote the yield.
The reason why it is an issue is because it meant Greece was unable to raise any more money at that point. Even if they raised money at 35% yield, the coupon and principle payments would have drained them very quickly thereafter. The “collapse” was basically the market saying, “I will not lend to you unless you give me absurdly unreasonable terms because you’re not making good on your current obligations and so that means it’s almost certain I won’t get the full face value of the bond back.” And if it can’t pay for basic services, pensions etc., I suppose the issue with that is self-explanatory.
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