Demand tight in Greece’s first 2022 market foray

Greece received 11 billion euros of demand for a new 10-year bond sale on Wednesday, tapping the markets at a challenging time as the European Central Bank’s pandemic bond-buying stimulus scheme is set to end in March.

The demand, which is not final and could increase before the sale closes, is less than half the 30 billion euros Greece received for its last 10-year bond sale last June.

Greece is also paying a much higher yield on the bond, which is due to price for a spread of 140 basis points over the mid-swap level, according to the lead manager, equivalent to a yield of around 1.89% according to Reuters calculations.

That is much higher than the 0.88% it paid last June, back when its borrowing costs were near record lows.

“The higher cost by about one percentage point reflects the increase in yields across Europe,” said Kostas Boukas, head of asset management at Beta Securities in Athens. “The environment is different than last year as a result of higher inflation and policy change from central banks.”

Benchmark Greek 10-year yields have surged over 40 bps over the last month to 1.67%, the highest since May 2020, reflecting a broader rise in euro zone bond yields as markets position for a March rate hike from the US Federal Reserve and the ECB plans to end its PEPP bond buying the same month.

That will mean junk-rated Greek bonds will no longer be part of its net bond purchases going forward, as the ECB only purchases investment grade securities for its regular bond buying program that will remain once PEPP ends.

However, the ECB will continue to reinvest proceeds from its maturing PEPP holdings into Greek bonds, which should help cushion the blow as the ECB has purchased a substantial amount of the marketable Greek debt since 2020.

The bond sale is the country’s first this year and follows a revision of the country’s BB credit rating outlook to positive last Friday by Fitch Ratings.

Greece plans to borrow 12 billion euros ($13.61 billion) this year focusing on a continuous presence in international debt markets and reducing in the debt-to-GDP ratio estimated at 197% of GDP in 2021. [Reuters]