Concern brewing among fund managers over Greece’s five-year bond issue

Concern brewing among fund managers over Greece’s five-year bond issue

The initial enthusiasm of fund managers who participated in Greece’s first five-year bond issue after three years on July 25, 2017 is beginning to give way to concern. After 16 trading sessions, the yield on the 5-year bond stands at 4.65 percent, compared to the original yield of 4.47 percent on July 26, when the bond started trading.

Although fund managers had expected a decline in government borrowing rates, due to Greece’s return to the markets for the first time since March 2014, markets are re-evaluating the prospects of the Greek economy and borrowing costs are back at the levels they were on June 15, when the Eurogroup met and approved the country’s second bailout review and the disbursement of a bailout tranche of 8.2 million euros.

The latest developments are a headache for the government, which would have liked the country’s borrowing costs – at least at the 10-year level – to fall below 5 percent. But that is not the case. The yield on the 10-year bond has climbed to 5.57 percent from 5.25 percent in July 26. Moreover, the yield on 2-year paper has also risen to 3.15 percent compared to 3.10 percent on July 26. The disappointing picture as regards the country’s borrowing costs is also reflected in the increase of spreads.

Fund managers will today be assessing the credit rating report for Greece by Fitch, which was released on Friday. The government is aiming for a reduction in the country’s borrowing costs over the next few months in order to attempt a second Greek bond issue in late October and early November, when the third bailout review will begin.

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