Foreign funds may have recently appeared more favorable toward Greek bonds and the possibility of a new issue by the Public Debt Management Agency (PDMA), but the Greek government’s plans for tapping the capital markets in the near future seem to be have been put on hold.
The climate in international markets has not yet returned to stability, while the summer period means liquidity is particularly limited, running counter to strong demand by investors for assets in general and for Greek paper in particular.
These factors are compelling the PDMA to wait before it makes any new moves in the markets, as the aim is to attract long-term investors and not profiteering funds that will sell off the Greek debt as soon as they get an excuse to do so. An important element will be the ratings by international agencies, which remain several notches below investment grade, although last Friday Standard & Poor’s adjusted the country’s outlook from stable to positive.
That situation, according to analysts, means that any new bond issue would have a very limited and profiteering investor base at the moment.
The spreads of Greek bonds, after all, illustrate that the country’s sovereign debt entails risk for investors – even if Greece is just a month before its exit from the bailout program – that is higher than the risk the bonds had before Greece’s ever entered a program. The benchmark 10-year bond’s spread is at 360 basis points and the seven-year one at 343 b.p.; when Greece tested the markets in January 2010 with a 10-yr bond and two months later with a 7-yr one – before the bailout process – the spread with the German bund stood lower, at 310 b.p. and 324 b.p. respectively.
The main reason Greece will need to wait before it issues a new bond is that the European Central Bank must first conduct a Greek debt sustainability analysis so as to determine whether the waiver – the exceptional measure of accepting Greek bonds as collateral for the supply of cheap liquidity from Frankfurt to the Greek commercial lenders – will remain in place or not, after Greece has emerged from the bailout program on August 20.