Greece Sells $2.1 Billion of Debt After Rescue Plan (Update2)
By Anchalee Worrachate
April 13 (Bloomberg) -- Greece’s auction of Treasury bills drew stronger demand than at a previous sale as yields more than doubled in the first offering of debt since the nation won a pledge of aid from the European Union.
The government sold 780 million euros ($1.06 billion) of 26-week bills at a yield of 4.55 percent, attracting bids for 7.67 times the securities offered, the nation’s Public Debt Management Agency said today in Athens. Greece also offered 780 million euros of 52-week securities at a yield of 4.85 percent, with a bid-to-cover ratio of 6.54 times. In January, the 52-week bills were sold to yield 2.2 percent.
Euro-region finance ministers and the International Monetary Fund offered the country as much as 45 billion euros in loans two days ago. Greek two-year notes rose for a third day earlier today and the euro gained against the dollar as the lifeline boosted confidence the government will avoid a default.
“The result confirms that the package which was put in place on Sunday has enabled Greece to fund itself in the near- term,” said David Owen, chief European financial economist at Jefferies International Ltd. in London. “But the longer-term fundamental issues in terms of where we go from here haven’t changed. Greece has to put its finances in order against the backdrop of an economy that currently is shrinking.”
Financing Needs
Prime Minister George Papandreou needs to raise 11.6 billion euros by the end of May to cover maturing debt, with another 20 billion euros required by year-end to pay interest and finance this year’s deficit. Last week the government estimated its 2009 budget shortfall to be 12.9 percent of gross domestic product, the biggest in the euro’s history and more than four times the EU’s 3 percent limit. The previous forecast was 12.7 percent.
Greece provided an option at today’s auction for investors to buy an extra 30 percent of the bills at an average price, which was used by buyers, raising the amount sold to 1.56 billion euros from the 1.2 billion euros initially earmarked.
“Many investors used the 30 percent option, which is a good signal,” said Luca Cazzulani, a fixed-income strategist at UniCredit SpA, one of the 22 primary dealers of Greek debt.
Selling short-term bills “is not the issue,” said Stuart Thomson, who helps oversee more than $100 billion as chief market economist at Ignis Asset Management in Glasgow, Scotland. “It’s whether they can sell medium-term paper and whether they can sell enough of it. Greece will eventually be forced into a partial default.”
Yield Spread
Yields on Greek bonds rose last week as confidence in the nation’s assets withered. The extra yield investors demand to hold the country’s 10-year bonds instead of German bunds, the region’s benchmark government securities, climbed to 442 basis points on April 8, the highest since 1998. The Greek-German spread averaged about 65 basis points, or 0.65 percentage point, in the five years through November, before concern deepened that the nation’s deficit would soar.
Deteriorating sentiment toward Greek debt led to the lowest demand in a year at 26- and 52-week bill sales in January, when the Public Debt Management Agency raised 3.7 billion euros from the auctions, which included a 13-week security.
January Demand
The 26-week bill drew bids for 4.9 times the amount offered on Jan. 12, compared with an average bid-to-cover of 6.2 times in 2009, according to data compiled by Bloomberg. The ratio at the 52-week sale was 3.1 times in January, below last year’s average of 5 times, the data showed. Demand for the 13-week bills was also less than the average in 2009.
The 52-week bills were sold at a yield of 2.2 percent at the January auction, compared with an average of 1.62 percent in the previous four auctions in 2009. The 26-week securities were issued to yield 1.38 percent in January, against an average of 1.36 percent.
“I don’t think you can fairly compare yields at this auction and the one in January and say this was a bad auction,” said Wilson Chin, a fixed-income strategist at ING Groep NV in Amsterdam. “Borrowing costs have surged since.”
Euro-region finance ministers said on April 11 they would offer Greece as much as 30 billion euros in three-year loans in 2010 at about 5 percent. Another 15 billion euros would be provided by the IMF.
Euro Test
With the euro facing the stiffest test since its 1999 debut, the 16-nation bloc maneuvered around rules barring the bailout of debt-burdened countries, aiming to prevent Greece’s financial plight from spreading to other members and to mute concerns about the currency’s viability. The euro weakened almost 5 percent versus the dollar this year.
Gains for Greek bonds today drove the yield on the two-year security as much as 45 basis points lower to 5.84 percent, before paring the decline to 6.30 percent. The yield tumbled 41 basis points to 6.80 percent yesterday after the rescue package was announced.
Concern that Greece’s credit rating remains vulnerable may have restrained demand at the bill sale, said Ciaran O’Hagan, a fixed-income strategist in Paris at Societe Generale SA, another primary dealer for Greek debt sales.
Fitch Ratings cut Greece’s debt on April 9 to BBB-, its lowest investment grade, with a “negative” outlook, meaning the company is more likely to cut its classification than leave it unchanged or raise it. Standard & Poor’s and Moody’s Investors Service also have “negative” outlooks on the debt.
“Greece’s new Fitch rating is a negative for this auction, and indeed for all Greek debt holders,” O’Hagan said.
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