BUSINESS

Greece delays landmark bond issue on Italian market jitters, sources say

LEFTERIS PAPADIMAS

TAGS: Economy, Finance

Greece has decided to push back by a few months its plan for a new bond issue due to increased political risk in Italy that has rocked euro zone debt markets, government officials said on Wednesday.

Heavily indebted Greece, shut out of bond markets in 2010 after its debt crisis broke out, has been tiptoeing back after carrying out reforms in return for bailouts from its euro zone partners and International Monetary Fund.

Athens was keen on a new bond issue, most likely its first 10-year paper after a decade, this summer and preferably before its current bailout ends in August, to establish continuity in the bond markets.

But officials told Reuters that the plan might have to wait until the autumn, when Greece hopes to have also secured further debt relief from its official lenders.

“We examined the possibility of an issue before the end of the bailout but after the recent turbulence it is not going to happen,” one of the officials said, declining to be named.

Athens has tapped bond markets twice in the past 12 months, via a seven-year bond in February and a five-year bond in July 2017. It wants to be in a position to cover its financing needs from the markets after its bailout expires.

Markets were jolted last week as Italy’s two main anti-establishment parties struggled to form a government.

A coalition has since been agreed, but euro zone financial markets remain on edge over the generous spending plans of the incoming government and potential for a standoff between Brussels and Italy, the euro zone’s third largest economy, in coming months.

The yield on 10-year Greek bonds GR10YT=RR has risen by about half a percentage point to 4.5 percent in the last two weeks. Likewise, the yield of 7-year government paper issued in February climbed around 58 basis points before easing to 4.24 percent on Wednesday.

Athens faces debt repayments of about 15 billion euros before the end of 2019, with officials saying it can easily cover its financing needs by 2020, without a single bond issue, thanks partly to a cash buffer it is building up.

For the post-bailout period, Greece does not want to ask for a so-called precautionary credit line, which usually comes with strict fiscal and reform conditionality.

The government aims to outperform its fiscal targets in the coming years and has been accumulating a cash buffer with unused bailout loans and money raised from markets.

In a case of an emergency, it could also tap public entities with cash surpluses through repurchase agreements.

“Having a strong liquidity buffer, we can wait for the post bailout period for our next move,” the official said. “On top of that, there will be a decision on debt relief.” [Reuters] 

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