Time is ripe for a 10-year bond issue, on certain conditions


The Finance Ministry is revisiting plans for a benchmark 10-year bond that have been frozen for over a year, with March looking likely for its issue.

The issue is expected to concern a small amount and to be conducted in a “safe” environment (as was the case in this month’s five-year issue), mainly with the aim of improving the government’s image, though the decision depends on several conditions that are far from certain.

Sources aware of the government plans say that three matters have to be settled before any issue of the country’s first post-bailout 10-year paper: The approval by creditors of the new scheme for protect debtors’ main residence, the ratification of the new framework for the reduction of nonperforming loans and a favorable decision by the March 11 Eurogroup on the completion of the second post-program assessment and on the disbursement of 1 billion euros.

All of this actually boils down to the state of the banking system, which the investment community regards as the biggest challenge facing the Greek economy. The same sources stress that markets will only take a positive view of such a long-term issue if uncertainty regarding the credit sector is overcome – at least to some extent.

Market sources say that if the above three conditions are fulfilled (even more so if Moody’s offers a credit rating upgrade on March 1) and there are no fresh market jitters internationally, the government would be advised to move ahead with a 10-year note as soon as it decides to address bond investors, and not later. This is a view that is shared by the Finance Ministry, at least for now, as it also serves the government’s election plans.

HSBC also argued in an analysis last Thursday that Greece’s next step ought to be a 10-year issue.

The same sources explain that the environment may become less favorable later, due to European and local elections ruling out any plans for a 10-year issue. In contrast, conditions are particularly favorable right now, given also that the yield of Greece’s 10-year bond dropped to 3.83 percent on Friday.