Bond market spotlight on new deals, first Greek sale in almost a year

Bond market spotlight on new deals, first Greek sale in almost a year

Greek government bond yields fell on Tuesday, outpacing eurozone peers, as Greece began selling a five-year bond for the first time since emerging from an international bailout five months ago.

Eurozone bond markets were supported by caution before Britain's parliament votes on Tuesday on proposals to change Prime Minister Theresa May's Brexit deal, looming high-level talks between the United States and China on trade and Wednesday's Federal Reserve meeting.

New bonds, sold via a syndicate of banks, from Greece, Belgium and Austria were also in the spotlight.

Weaker economic conditions have boosted expectations that record low interest rates will remain in place for some time. This has encouraged governments to launch new bond deals and take advantage of renewed investor appetite for fixed income.

After hefty yield falls in the past month, the upcoming sales were viewed as an important gauge of sentiment.

“There are two factors at play – one is traditional front-loading of supply by issuers in the first months of the year,” said Mathias van der Jeugt, rates strategist at KBC. “Second, is that issuers are profiting from the global growth worries and stock market turmoil that has pushed yields lower. Also, the ECB downgraded its growth forecasts last week which opens the door for easy monetary policy for longer.”

The pricing of a 30-year syndicated Belgian bond and a 10-year Austrian bond are expected to be completed later in the day, as is the new Greek five-year bond.

Initial guidance for the five-year Greek bond was for a yield of 3.750-3.875 percent, a source told Reuters.

By mid-morning, demand was over 8.5 billion euros, according to International Financing Review.

Pooja Kumra, European rates strategist at TD Securities, said she expected a minimum of 3 billion euros ($3.4 billion) of the new bond to be sold.

Greek five-year bond yields were around 1.5 bps lower at 3.03 percent, while the benchmark 10-year bond yield hit a new four-month low of 4.026 percent. In the rest of the euro area, 10-year bond yields were little changed on the day.

A string of recent successful syndicated bond deals include long-dated sales from Spain and Italy this month that met with record investor demand.

Germany sold almost four billion euros of bonds on Tuesday, while yields on six-month Italian paper sold at an auction turned negative for the first time since April.

“Given that every syndicated bond deal recently has gone well and Greece has been flagging it, I suspect the Greek deal should also go well,” said Rabobank rates strategist Lyn Graham-Taylor.

Greece, which emerged in August from its third international bailout since 2010, has tested market appetite under the watch of its international lenders in recent years. It sold 3 billion euros of seven-year bonds nearly a year ago. [Reuters]

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