Greece making the right moves on the way to tapping markets

Athens is taking all the right steps for tapping the money markets again next year. It has drafted a strategy and is sticking to it with success so far, even though the road is rocky and full of risks.

Finance Minister Yannis Stournaras said that Greece would try its luck in the markets in 2014 back in May. In the five months since, a communication campaign has been under way to change prevailing perceptions regarding the Greek economy and bond market. The campaign culminated with the a visit by Prime Minister Antonis Samaras to the US last month.

For now the campaign seems to be paying off, considering that the yields of Greek bonds continue to drop despite the uncertainty on a deal with the country’s creditors. In early April the yield of the benchmark 10-year bond amounted to 12.26 percent and its price stood at 48.02 cents per euro. These levels now stand at 7.86 percent and 69.27 cents respectively.

So far Athens has set its own target date for tapping the markets – despite its creditors saying this will not happen before 2015 – and started making contacts behind the scenes in July to advertise the good performance of the Greek economy such as the achievement of a primary surplus. Athens has also made an effort to highlight the upside of the Greek debt both in terms of its structure – with the official sector holding most of it – and of its length, which comes to 16.2 years, against 6.7 years for German bonds and 6.2 years for French bonds. These factors render the default risk particularly small and place the burden on debt servicing, which in Greece’s case is now manageable.

Another encouraging sign has been the participation of foreign investors by 25 percent in the latest issue of six-month treasury bills, as foreign funds are convinced Greece is worth investing in.

For the effort to reach a successful conclusion, however, Athens will have to come through on the good news it has advertised and reach a final agreement with its creditors on how it will cover the fiscal and funding gaps of 2014. It will also have to implement the Greek bond swap program in the secondary market to reduce the number of bonds in the market from 20 to five, as well as changing perceptions regarding what makes debt “sustainable.”

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