Although Greece’s Finance Minister Yannis Stournaras stated on Monday that the country isn’t rushing to return to markets, the government sped up the process before Angela Merkel’s visit to Athens, on Friday.
Greek 10-year yields dipped on Tuesday afternoon on rising speculation that the country, which restructured 130 billion euros in debt in 2012, could issue its first bonds in four years as soon as Wednesday.
"There is widespread speculation that the bond is coming tomorrow and that is pushing yields lower," RBS strategist Michael Michaelides had said, ahead of the announcement
Ten-year yields fell 2 basis points to 6.14 percent, reversing an earlier rise and outperforming all other euro zone government bonds.
Greece has hired a group of banks to manage the sale of a 2 billion euro five-year bond, Thomson Reuters markets service IFR reported last Thursday. Today it was announced that they were Bank of America Merrill Lynch, Goldman Sachs, HSBC, Deutsche Bank, JP Morgan, and Morgan Stanley.
This will be its first bond issue since just before Athens received the first tranche of a 240 billion euro bailout in 2010, and comes just two years after it forced investors into taking painful losses on their bondholdings.
Athens sold six-month treasury bills on Tuesday at the cheapest borrowing cost at auction since its debt crisis began in 2010. The strong demand for the sale, most of which was from foreign buyers, provided further momentum for its planned return to longer-term bond markets.
Finance Minister Yannis Stournaras tried on Monday to pour cold water on rising speculation that a bond sale was imminent, but bond traders cited a report in the Wall Street Journal that the deal would come on Wednesday.
Greek bonds outperformed other euro zone government debt, whose yields edged higher as investors responded to warnings from European Central Bank policymakers that any move to print money to raise ultra-low inflation was still a long way off.
The move by Athens is also opportunistic, however. Yields, which move inversely with prices, are falling on bonds issued by economies across the Eurozone’s periphery. Global investor demand for higher interest rates has given Greece the chance to prove it can operate as a normal functioning state that raises its own finance.
But still on investors’ minds are Greece’s 2012 default, and the perilous state of its economy and politics.
For Antonis Samaras, Greece’s Prime Minister, a return to markets would cap his narrative of a “success story” based on stabilizing the economy and outperforming fiscal targets. He wants to pull off a successful bond issue to bolster support for his fragile coalition government ahead of May’s European elections.
His timing looks good. Eurozone bond markets have rallied powerfully since last December when Ireland successfully exited its international bailout program. Portugal is expected to follow later this year. Yields were given a further nudge downwards last week when Mario Draghi, the European Central Bank president, signaled eurozone “quantitative easing” – or large scale asset purchases by the central bank – had moved a step closer to fight deflation threats.
Greek 10-year bond yields have fallen below 6.2 per cent, the lowest since early 2010. Paving the way for a fresh issue of government debt was a successful bond launch last month by Piraeus, Greece’s largest bank by assets.
Athens should take advantage of the momentum
Athens should “take advantage of the momentum,” says Anthimos Thomopoulos, Piraeus’s chief executive. A return to capital markets “would focus minds on Greece and provide concrete evidence that things are getting better”.
George Athanasakis of Pantelakis Securities in Athens says: “It’s a moment not to be missed.
“Greece has just adopted a structural reform package, the business climate is the best in five years and confidence in the recovery is growing.”
As it starts marketing, Athens will point out unique features of its post-crisis debt profile. Thanks to its international bailout, its immediate debt servicing demands are modest – only about €6.5bn until 2021. What is more, EU partners, which own 65 per cent of its debt, have clearly backed its continuing membership of Europe’s monetary union.
Another reason for pressing ahead is the need to rebuild the structure of Greece’s debt market. To attract long-term investors, countries need to offer liquid markets in a range of maturities. Athens’ plan to return to markets with a modestly sized issue of five-year debt would help repair damage created by the crisis turmoil. Bankers reckon a good result would be if Athens ended up paying a yield below 5.25 per cent.
But that would still be significantly higher than the 2.65 per cent and 1.77 per cent on Portuguese and Italian five-year bonds respectively. Moreover, the attitude of European authorities has been distinctly lukewarm. While Greece’s successful return to capital markets would be a confidence-boosting signal, a private fear is of Athens being distracted from still-essential reforms and becoming more belligerent in negotiations over future outside aid.
While it was “natural” for Greece to test the market, the country should be wary of paying too high a price, Klaus Regling, head of the European Stability Mechanism rescue fund, warned in a Greek newspaper at the weekend.
Despite the potentially attractive yields, many longer-term investors however still remain cautious given the country’s perilous public finances.
“The crisis may not be fully over, but the need for yield is still strong,” said Andrew Brenner, the head of international fixed income in New York for National Alliance Capital Markets, said in a telephone interview. “Greece has turned the corner.”
The country’s financing situation has already benefited from a budget surplus before interest costs of almost 3 billion euros, which the government expects the European Union’s statistics agency to confirm this month.
The European Commission forecasts that Greece’s gross domestic product will expand 0.6 percent this year before accelerating 2.9 percent in 2015. The country has lost about a quarter of its economic output in the recession that started in 2008, after the Greece carried out the biggest sovereign restructuring in history two years ago.
Standard & Poor’s last month maintained Greece’s credit rating at B-, six steps below investment grade, saying the country’s debt remains large even as its fiscal performance improves. Its ratio of debt to gross domestic product is forecast by the European Commission to be 177 percent this year, the highest in the European Union.
source: Financial Times, Reuters, Wall Street Journal, Bloomberg
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