Seven-year bond issue is on the way


The Finance Ministry is preparing to issue a new bond in the next few days, in light of advice from the European Commission that the planned “cash buffer” to be padded out ahead of the conclusion of the bailout program may require some support.

The planning remains the same and the issue will concern a seven-year paper to raise 3 billion euros or more. Banking sources say that the ministry is considering not setting a target for the funds to be drawn. The seven-year issue will add to the range of interest rates, supplementing the six issues of varying maturities that stemmed from the recent PSI bond swap.

A little later, in early February, the same sources say the ministry is planning to make a shift in treasury bills too, issuing 12-month debt and then 18-month bills, which haven’t been issued since April 2010 as short-term debt has since been restricted to three- and six-month T-bills.

These decisions are to be implemented while Greek bond yields continue to slide: The yield of the benchmark 10-year bond dropped seven basis points on Tuesday to 3.77 percent, a level comparable to that of 2006.

However, analysts urge caution, saying this decline should not lead to the wrong conclusions, given that the spread between the 10-year yield and that of the German bund has not narrowed to the same extent, standing at 3.18 percent against 3.65 percent at the beginning of the year. They warn that when rates start climbing again, there is the risk of a serious increase in the cost of Greek borrowing. That is why they say that a precautionary credit line would serve as a safety net against market speculation. However, neither Greece nor its creditors appear to desire such a safety net, as Finance Minister Euclid Tsakalotos said on Monday in Brussels.

Therefore the so-called cash buffer has replaced the credit line; the Commission’s compliance report provides for 10.2 billion euros to be collected from the bailout tranches, and then to be supplemented by cash from the bond issues.

After the seven-year bond, a three-year paper will be issued, as well as a landmark 10-year bond upon the completion of the program, so that Athens can raise a total of 6 to 9 billion euros.