Greek bond sale raises €8bn as debt default fears allayed
Published 26/01/2010 | 05:00
THE Greek government enjoyed a much-needed boost yesterday as investors piled into its new €8bn five-year syndicated bond issue, but it paid a high price to ensure success.
Attracted by the yield, investors put in orders totalling €25bn for the issue.
The huge demand for the bonds was an important vote of investor confidence amid worries over default risk, and should give Greece sufficient funds to repay debt maturing between now and the start of April. Orders for Greece's five-year benchmark bond have topped €9bn, less than one hour after books opened yesterday.
The bond sale, considered large by the standards of any euro zone country, was a much-needed boost for Greece.
The government celebrated the success and economists said the strength of demand at €25bn was equivalent to almost half of Greece's full-year borrowing schedule, showing that any short-term concerns about Greece failing to pay off its debts were allayed for now.
"Greece proved it can raise the funds it needs for 2010 without a problem," Public Debt Management head Spyros Papanicolaou said, adding that he expected spreads to fall after the issue.
But the interest rate for issuing the €8bn in five-year bonds was steep and difficult fiscal steps remained ahead for the euro zone's weakest link.
Peter Chatwell, an interest rate strategist at Calyon in London, said that the bond was "tremendously cheap", prompting the investors to jump in.
"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," said Giada Giani, an economist at Citigroup.
The euro strengthened against the dollar after the auction and the premium investors' demand to hold benchmark Greek bonds over equivalent German bonds narrowed markedly.
Moody's rating agency, which has downgraded Greece's debt and has a negative outlook on the rating, said the bond sale showed Greece could finance its debts in 2010 but the key for its rating was the ability to implement spending cuts.
"The key for Greece is really implementation," Sarah Carlson, Moody's lead analyst for Greece, said. "It is a political as well as economic challenge."
The new socialist government, which inherited a massive budget deficit of 12.7pc of gross domestic product in 2009, is rushing to cut spending to repair public finances -- austerity which analysts fear could ignite popular opposition.