Friday 15 December 2017

Ireland fails to follow cheap Greek bond buybacks

Donal O'Donovan

IRELAND has not followed Greece in taking advantage of falling prices for government bonds to cut the country's debt burden, the Irish Independent learnt last night.

News emerged yesterday that the Greek government has used the collapse in the price of its bonds to buy €2.3bn of the paper in the secondary market since the start of the year. Officials said the buyback was part of treasury cash management operations and that debt buybacks during the same period back in 2010 were much smaller.

The news helped boost Greek bonds on a mixed day for the 'distressed' periphery that saw Portuguese bond yields hit an all-time high, Greek yields decline and Irish government debt trade flat.

The Greek buybacks come as the country's debt trades at discounts of up to 40pc. It means the Greek government has decided to take advantage of the prices to cut their overall debt burden.

The president of the eurogroup and prime minister of Luxembourg, Jean-Claude Juncker, said last night that a debt restructuring was not an option for Greece.

He said he was confident a bailout deal would be agreed for Portugal by mid-May.

Such 'buybacks' are allowed under market rules. The problem for most issuers tends to be finding the cash to fund the deals upfront, especially when things are so bad that your bonds are trading at a big discount.

Last night, National Treasury Management Agency sources said that Ireland had not made any such purchases this year.

The Irish Government has used buybacks to reduce the amount of debt owed by a number of bailed-out banks, but in those cases plans to make the purchases, which depended on a minimum take up, were announced ahead of time to the market. Greece appears to have taken a different track, buying its bonds without notice in order to minimise any risk of driving up prices.

The yield, or interest, on Greek bonds fell yesterday for the first time in two weeks after the news was revealed.

Greek government two year bond yields fell to 16.83pc yesterday, from 17.723pc. The yield on Greek 10-year bonds dropped less sharply to 15.54pc from just under 16pc.

Irish bond yields were flat yesterday, with 10-year yields at 10.21pc and two-year yields at 11.522pc.

Portugal underperformed as its official remains locked in talks with the IMF and European Union to agree the terms of a bailout package.

Portugal's two-year bond yield hit a euro-era record of 12.05pc at one stage, ending the session at 11.69pc up from 11.48pc on Wednesday.

Portugal plans to sell up to €1bn of government debt that will be repaid in just three months at an auction next week, officials said yesterday.

Irish Independent

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