Bond issue with an eye on rating agencies
This week’s issue of a seven-year bond has shown Greece is maintaining its presence in the markets as well as strengthening the country’s cash reserves by 2 billion euros at a time when it needs liquidity to respond to the cost of the Covid-19 crisis. It also illustrated how significant a country’s rating is in periods of turbulence such as this, and the damage caused by the eurozone’s reluctance to introduce bolder support measures such as a Eurobond.
Greece made a market foray at a particularly adverse juncture, despite the new QE program the European Central Bank has started including Greek bonds. Debt sustainability concerns for the weakest states and fears of a new debt crisis have not subsided after the recent Eurogroup; instead, they have grown.
Analysts say that although Greece raised 2 billion euros after drawing bids adding up to 5.9 billion on Wednesday, it is obvious it is having a hard time recovering the demand it enjoyed up until very recently, pointing to the 18.8 billion euros in offers for its 15-year paper in January. The 2.013 percent interest of the new seven-year bond highlights that investors are seeking out higher returns for the risks they take. The interest rate of the 15-year bond had come to 1.911 percent.
All this is the outcome of the historic shock for the world’s economies and the shift in investor psychology, but also the result of the risk that re-emerges for Greece each time market conditions deteriorate.
As Jens Peter Sorensen, chief analyst at Danske Bank, tells Kathimerini, both the bids and the interest rate are related to Greece’s grades from the rating agencies. Although Cyprus and Portugal recently hit the markets with seven-year bonds and faced difficulties too, their interest rates came to 1.564 percent and 0.7 percent respectively. These countries of the European South have investment grade by the agencies, so investors pick them with an eye on greater security.
The rating agencies are one of the reasons Greece chose to make a market foray this week and not later. Next Friday Standard & Poor’s and DBRS Morningstar will issue their verdict on Greece, in the midst of the coronavirus crisis. The favorable scenario for the government is that they will only downgrade the country’s outlook from positive to stable, which is what the bond issue sought to achieve.