Greece’s bailout extension no panacea for struggling bond market

One week after euro-area finance ministers agreed to extend Greece’s bailout, the nation’s government bonds are showing no sign of moving above where they were when the anti-austerity SYRIZA party was elected.

Greek 10-year securities held a four-day decline on Tuesday, even after the accord avoided a funding crisis that had threatened to push the nation out of the currency bloc. Greece could need a third bailout deal when its current program expires in June because markets may still not be prepared to lend to it, even with a euro-area credit line, European Commission Vice President Valdis Dombrovskis said in Riga on March 2.

“The agreement reached last week is just a delay to finding a more durable solution,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “In terms of market impact, this just prevents yields from rising further. As long as there is no durable agreement and a decision when it comes to debt management, it makes sense to see yields remaining relatively elevated.”

Greece’s 10-year yield was little changed at 9.56 percent at 10:28 a.m. London time after rising 94 basis points, or 0.94 percentage point, over the previous four days. The price of the 3 percent bond due in February 2025 was at 61.79 percent of face value.

The nation’s three-year rate increased nine basis points to 14.69 percent. The yield premium of about five percentage points more than the 10-year bonds may reflect investors’ concern they won’t get paid back in full.

Tsipras Pledge

It’s a far cry from July of last year, when Greece sold the 2017 securities at a yield of 3.41 percent. The election in January of Syriza’s Alexis Tsipras on a pledge to renegotiate the nation’s debt obligations and roll back austerity has roiled Greek sovereign bonds, even as euro-area peers have enjoyed the lowest borrowing costs on record.

There was no trading of Greek government bonds through the electronic secondary securities market, or HDAT, on Monday, ANA reported.

The difference between the bid and offer yields for Greece’s 10-year securities, a measure of the bonds’ liquidity, was about 30 basis points on Tuesday, according to data compiled by Bloomberg. In contrast, the spread on similar-maturity German bunds, the euro region’s benchmark securities, was 0.1 basis point.

Greece is scheduled to sell six-month bills on Wednesday. The Athens-based debt office previously allotted 182-day securities on Feb. 4 at an average yield of 2.75 percent.

Greek government debt returned 3.9 percent this year through Monday, according to Bloomberg World Bond Indexes. Portugal’s securities were the best-performing in the euro area, gaining 5.6 percent, while Germany’s earned 1.9 percent, the indexes show.

[Bloomberg]