Greek yields rise as market comeback euphoria fades
By John Geddie $ Marius Zaharia
Greek bond yields rose on Friday as investors booked profits on the rally that preceded Greece's return to debt markets, with even its sought-after new five-year bond succumbing to selling pressure.
Athens, which had been exiled from capital markets for four years and was bailed-out to the tune of 240 billion euros as its economy faltered, received bids seven times the amount in its first sale of a new bond since before its bailout in 2010.
The transaction had buoyed other eurozone government bond markets on Thursday, but the new bonds faced a difficult birth as trading started on Friday with investors losing their appetite for riskier assets.
"The euphoria is fading after Thursday's deal,» said Owen Callan, a senior analyst at Danske Bank.
"People are taking stock of the fact while its great that Greece regained some sort of access, there is still a very long road to recovery for Greece."
Yields on the new Greek bond traded above 5 percent on Friday, compared with the 4.95 percent level at which it was issued. It had traded at lower yield levels earlier on Friday, but that prompted immediate profit taking from Thursday's buyers. Yields rise as the value of the bond falls.
Although its economy looks to have turned a corner, Greece is still seen by many as a weak link within the eurozone. The government holds only a two-seat majority in parliament and early elections are a constant risk, with the anti-bailout Syriza party leading in opinion polls.
Many investors still fear social unrest as unemployment, although falling, remains more than twice the euro zone average at almost 27 percent.
"We still see Greece as pretty vulnerable, they have political issues ... social tensions are quite high,» said Jozsef Szabo, head of global macro at Aberdeen Asset Management, a firm that keeps away from Greece.
Yields on older Greek bonds jumped, with the 10-year yield rising more than a quarter of a percentage point to 6.25 percent.
In the run-up to the sale, Greek 10-year yields had fallen to four-year lows below 6 percent.
"It's quite obvious that many of the guys that bought the bond were not the buy-and-hold type. They were just fast money,» one trader said.
At their peaks following a March 2012 restructuring that imposed losses on debt holders, Greek bonds yielded above 30 percent.
Other eurozone bond yields rose as well on Friday, while global stock markets tumbled. Given the bigger picture, some market participants said the new Greek bonds were doing well to sell off less than their longer-dated peers.
"The general market tone is weaker today but even with that the new bonds are holding up,» said Andrew Salvoni at Morgan Stanley, one of the bankers managing the syndicated sale.
Athens received 20 billion euros of orders for its 3 billion euro bond sale. The hefty demand led brokers to mark the new five-year bonds at around 4.80 percent yield before the deal priced on Thursday, expecting the bonds to rally considerably once secondary market trade began.
Friday's moves caught them on the wrong foot.
David Schnautz, a strategist at Commerzbank, said the vast orders for the new bonds were not a true reflection of demand, as investors were prone to inflate their orders to make sure they received a decent allocation.
"(As an investor) you have to shoot very high to get what you actually want,» he said.
Others said the final pricing was too aggressive, which was part of the reason Greek bonds sold off on Friday.
"It priced at least 25 bps below initial expectations. They took advantage of the big order book and probably they revised the pricing too much,» said Alessandro Giansanti, senior rate strategist at ING.
"Some investors are (selling) thinking it came at levels that were too tight."
The Greek finance ministry said on Thursday a third of the bonds were allocated to hedge funds, investors notorious for having short-term trading strategies, leading some in the market to question why this was the case if demand was so high.