T-bills snapped up at auction

Strong demand for short-term government debt but spread keeps widening on 10-year bond

Greece’s 2-billion-euro T-bill auction, its first borrowing exercise this year, met with strong interest by investors and was covered more than six times.

The Public Debt Management Agency (PDMA) yesterday sold the entire amount it intended to raise via 13-, 26- and 52-week Treasury bills and accepted an additional 550 million in non-competitive bids, even as intra-eurozone bond yield spreads expanded to their widest levels since the euro’s launch. “Demand was much stronger than expected, a vote of confidence in Greek debt,” said chief trader Fanis Mylonas at EFG Eurobank.

The results were a relief for Greece, which was recently warned by Standard & Poor’s ratings services that its single A rating, the lowest in the eurozone, may suffer a downgrade as public finances worsen.

“We expect that the majority of investors were domestic and for them the idea of putting money as close to cash, in a T-bill, rather than in longer-dated and riskier Greek bonds, makes sense,” said Stephen Lewis, chief economist at Monument Securities in London. “Investors will get a decent return on yield and believe that Greece’s relations with the euro will be unharmed in the short term. But longer-dated bonds are struggling and spreads widening as worries grow about relations in years to come,” he added.

The auction produced a uniform yield of 2.67 percent for the 52-week T-bill, down from 5.09 percent in a previous September 2008 auction. PDMA officials said they were satisfied with the results as they prepare for an upcoming bond auction, likely to take place next week, that will aim to raise some 3 billion euros. Sources said PDMA and Standard & Poor’s officials are likely to meet up soon in order to give the Greek government time to price in a possible downgrade in the bond auction. With economic activity decelerating, Greece’s fiscal strains have raised concerns, recently driving the yield spread of 10-year government paper over Bunds beyond 220 basis points. The spread widened yesterday to 243 basis points. (Reuters, Kathimerini)