State wants more retail investors to buy bonds

Greece said yesterday it plans to target next year’s issues of five- and 10-year bonds at domestic retail and institutional investors and pension funds, with the higher-yield products helping to offset lower returns from the more traditional investment products. The move toward the domestic market is also designed to pre-empt any capital flight abroad and to make up for the expected reduced interest from foreign investors making a beeline for the EU enlargement countries with their more attractive government bond yields. «Banks will increase their offering of five- and 10-year government bonds to retail investors,» Economy and Finance Minister Nikos Christodoulakis said, citing the higher rate of return from government paper as the principal draw. He said that Greek banks could attract retail interest either by selling government bonds on their own or linking them to a banking product. While falling interest rates have benefited borrowers, the negative yield from savings is a source of despair for small investors. «Government bonds are an alternative way for small investors to invest their funds risk-free,» said Pavlos Kanelopoulos, investment banker at Proton Investment Bank. Returns are also better than the savings rate. Ten-year bonds offered a yield of 5.37 percent at yesterday’s trading, more than double an average savings rate of around 2 percent. According to the Bank of Greece, the five- and 10-year benchmarks were the most actively traded in the domestic market in November. Interest in short-term paper has intensified following the European Central Bank’s interest rate cut on December 6. Kanelopoulos said the move toward local investors comes as foreign interest is expected to wane. «The spread between Greek government bonds and the German benchmark has narrowed to around 23 basis points, showing that the Greek market is maturing. Foreign investors will flock to the enlargement countries because of their bigger yield,» he said. Encouraging pension funds to invest in government paper is part of a move to help the agencies diversify their portfolios. Last week, the government lifted a 5 percent ceiling on mutual fund investments by pension funds. The Public Debt Management Agency is planning two syndicated issues worth a total of 10 billion euros in January and February next year, split evenly between a five-year offering and a 10-year issue. The size of the issues has been designed to ensure sufficient liquidity. Greece’s borrowing needs next year are estimated at around 30 billion euros. Christodoulakis also announced a bigger role for Greek banks in future issues of government bonds. «National Bank, Commercial Bank, Alpha Bank, Piraeus Bank and Eurobank will have a bigger share of five- and 10-year offerings,» he said. «Greek banks have developed the expertise and experience for this.»

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