Greece’s imminent return to bond markets just two years after a massive debt restructuring, expected as early as Wednesday, lifted investor appetite for riskier credits which has stalled over the last couple of days.
Yields on peripheral eurozone sovereign bonds dipped but remain slightly higher on the week after European Central Bank policymakers warned that any move to print money to raise ultra-low inflation was still a long-way off.
“The fact that Greece is returning is good news for the periphery in general,» one trader said.
Greece has hired a group of banks to manage the sale of a 2 billion euro five-year bond, Thomson Reuters markets service IFR reported last Thursday.
While Athens tried to play down the immediacy of the deal earlier this week, fervent demand from foreign investors for its treasury billion Tuesday and media reports that the deal could come as early as Wednesday, has bolstered speculation the deal is imminent.
Greece’s ability to issue has been propelled by investors’ hunt for high returns in an environment of low official rates. Its 10-year yields have fallen from over 30 percent after it restructured 130 billion euros in debt in 2012, to just above 6 percent – a level not seen since it accepted the first tranche of a 240 billion euro bailout in 2010.
“One year ago it was unthinkable Greece could come to the market and issue bonds. Now it is a reality,» said Alessandro Giansanti, senior rates strategist at ING.
Bankers close to the Greek deal said on Tuesday that the path had been cleared for Athens after the European Financial Stability Facility – which counts eurozone member states as its stakeholders – issued 5 billion euros of seven-year bond.
“The EFSF has always coordinated its issuance with eurozone member states,» said one head of origination at a Greek primary dealer. «They may be borrowing at different levels but this is an etiquette that is observed.”
Portuguese debt, in particular, is expected to benefit from a successful Greek return. Portugal is looking to sell its first bonds by auction this quarter, providing further evidence that it can exit is bailout programme unassisted.
Greek 10-year yields dipped 4 bps to 6.13 percent in early trading, while Portuguese equivalents fell 1.9 bps to 3.93 percent, respectively.
ECB President Mario Draghi opened the door to central bank asset purchases last week. However, a raft of ECB policymakers have since stressed they were only preparing for what economists call quantitative easing, or QE, and would only move if they thought the inflation outlook had deteriorated significantly.
European Central Bank Governing Council member Christian Noyer said late on Tuesday that he did not see risk of deflation in the eurozone, while Bundesbank chief Jens Weidmann said any new measures to tackle low inflation would bring risks that must be carefully assessed.
German Bund futures dropped 15 ticks to 143.54, while cash 10-year Bund yields dipped 2 bp to 1.58 percent.
With little European data scheduled, market participants will be keeping a close eye on minutes from the Federal Reserve’s March meeting due on Wednesday afternoon.
Traders are eager to see whether the central bank discussed rate hikes which would likely put pressure on Treasury yields, and to a lesser extent, core markets in the euro zone.
U.S. Treasuries have been well supported after Friday’s jobs data lagged lofty expectations, prompting markets to re-evaluate their views on when the Fed would begin raising rates.