After Monday’s disbursement of the bailout tranche of 7.7 billion euros, the return to the bond markets is the next move being prepared by the Finance Ministry, possibly as early as next week.
Issuing a bond so soon, if that is indeed the final decision, will not only aim at scoring political points but also at utilizing a window of opportunity that is open until July 27, as the next will not appear before early October.
On July 27, the International Monetary Fund is due to decide on its participation “in principle” in the Greek program, committing the amount of 2 billion euros to Greece. This will only be disbursed if the debt-lightening measures are sufficiently clarified, however. The IMF decision will come with a new debt sustainability analysis (DSA) that is certain to say that Greek debt is not sustainable. Consequently the Finance Ministry would not want to attempt a bond issue overshadowed by a negative DSA.
The issue planned is a five-year one, between 2 and 4 billion euros, which will be covered in cash and through swaps of the bond that expires in 2019; this is the paper issued in 2014 which is seen as the vehicle for the return to the market, as its holders will be advised to swap it with a new one, probably a five-year bond.
Ministry officials express some reserved optimism, as market conditions are rather favorable (“they buy Egypt, so why not Greece” said one of them) and because there is disposable cash in the local banking system that can cover a considerable part of the issue: The Bank of Greece may give 850 million euros from bonds that expire up to 2019 and the commercial banks may offer 1 billion euros from bonds maturing in 2019 and 700 million from the margin they have before they reach the limit the European Central Bank has set for treasury bills and bonds.
That 2.25 billion euros would suffice to cover most of the issue even if it is up to 4 billion euros. This issue will have to be rather limited, not only because it will be testing the waters, but also because it ought to get the biggest possible coverage so as to be deemed successful.
Given that the markets are on summer mode in August and September will be dominated by the German elections and the possible reduction of the ECB’s bond-buying program, July is preferable for a Greek bond issue.