31st Oct 2020

Greek bond auction provides some relief

Greek officials breathed a collective sigh of relief on Monday evening (25 January) after the country's first bond issuance this year attracted considerable investor interest, a sign that market concerns over the country's public finances have, at least for the moment, partially subsided.

The successful selloff of €8 billion in five-year fixed-rate bonds also helped allay fears the Greek government might struggle to raise the €53 billion it will need this year to fund its debt requirements.

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"This proves the trust investors have in Greece's economy. Greece proved it can raise the funds it needs for 2010 without a problem," said Spyros Papanicolaou, the head of the country's public debt management agency.

Investors placed about €25 billion in orders for the Greek bonds, greatly exceeding expectations. But analysts said the high demand was at least partially the result of the attractive terms on offer, with the Greek administration offering a costly interest rate.

Peter Chatwell, an interest rate strategist at Calyon in London, described the bond as "tremendously cheap," reports Reuters.

The bonds are expected to yield around 6.2 percent. This compares with the 2.295 percent yield on German five-year bonds on Monday evening and the 5.85 percent yield on existing five-year Greek bonds.

But Mr Papanikolaou said he expected to see the spread between the yields on Greek and German government bonds start to narrow following the successful auction.

"We expect the spread to start to tighten after the sale because Greece has been misread and misjudged," he said.

Breather all round

News of the successful issuance helped lift the euro currency, which has been shaken recently by fears a Greek default could greatly weaken the 16-member bloc as a whole.

Giada Giani, an economist at Citigroup, said: "The bond sale was a positive sign, in the sense that Greece avoided the absolute disaster of proving unable to raise the amount it was targeting," reports The Times.

Greek stocks also rose following the surge in investor sentiment.

Monday's success will come as welcome respite to many eurozone officials, with concerns over Greece's budget deficit, ballooning debt and unreliable statistics hogging Europe's financial news pages in recent months.

Last October, the newly elected centre-left Pasok government disclosed that budget deficit figures had been massively understated, leading to credit rating downgrades and considerable market jitters.

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