A ‘window of opportunity’ for the first market foray in 2020
The continuation of yield chasing by investors has led to record demand for government bond issues in the eurozone. The Public Debt Management Agency (PDMA) is expected to make the most of this soon, with analysts stressing to Kathimerini that there is currently a window of opportunity for Greece, not only thanks to the favorable environment but also due to the significant advantages Greek securities offer.
“We expect Greece will be in a good position to issue the high end of the announced range, or 8 billion euros. This will enable Greece to increase early repayments (reducing the treasury bill stock and official sector debt), which in our view makes a lot of sense economically (helping reduce interest debt service) and at a time where investor demand for yield is high,” says Jorge Garayo, Senior rates/inflation strategist at Societe Generale.
“The timing is difficult to know but the PDMA would be in a position to issue right now if it wanted. I expect 50 percent of the year target to be done in the first quarter in any case. So January, February and March are likely to see supply,” he adds.
“On maturity we expect a new 10-year government bond as a pivotal point, especially after a successful 10-year deal in 2019. The PDMA may explore longer maturities, but with the recent extension of its weighted average maturity (21 years against an average of 7.7 years for peripheral markets in the eurozone), it does not need to extend a lot and may prefer to provide liquidity in the sub-10-year maturities it issued last year. The PDMA is likely to focus on its investor base (attracting high quality investors). This will be achieved by providing liquidity to the lines issued and continuing to be responsible when it comes to the reduction in debt/GDP and other measures which will take Greek bonds in the path toward investment grade,” argues Garayo.
Jens Peter Sørensen, Chief Analyst at Danske Bank, goes a step further saying that “the 10-year segment would be the most easy segment to sell”.
“Regarding the outlook for Greek government bonds then it is constructive/positive as the economic outlook is still healthy with GDP growth around 2 percent and surplus on the primary balance, plus there is still a positive rating outlook and there are modest redemptions in coming years until 2042, as there is no year with more than 6 billion euros in redemptions. Further, there is still a yield pick-up to EU peers, and if the rating continues to improve then Greece may qualify for the QE program in late 2020 or early 2021,” the Danish analyst tells Kathimerini.
Ioannis Sokos, director of fixed income research at Deutsche Bank, highlights another aspect that “has to do with lifting the limits for Greek banks to own Greek state bonds. This has been discussed for many years now, and when/if it takes place it could spur a new source of demand for state bonds by Greek banks which used to dominate the market before the crisis.”
“I wouldn’t be surprised if Greece issues bonds with a total size at the upper end or even above the 4-to-8-billion-euro range in 2020. When you compare Greece to Italy, two countries offering more or less a similar yield to investors, there are some key differences. First, Greece is still sub-investment grade and as such it is out of scope for many investors who have strict rating criteria. Second, because of the above, Greece is not PSPP-eligible yet. As a result, the speed of further upgrades is one of the most crucial factors for Greek bonds, as it could potentially make Greek bonds available to a much wider group of investors and push yields even lower. Third, there is a lot of political uncertainty in Italy, and almost none in Greece after the recent elections result,” Sokos explains to Kathimerini.
