Greece tests the market with bond

The government moved yesterday to test credit markets with the sale of a seven-year bond after eurozone leaders backed a joint European Union – International Monetary Fund standby bailout plan for the country. Greece priced the 5 billion euros of seven-year bonds to yield 310 basis points more than the benchmark mid-swap rate. The bonds’ 5.9 percent yield equates to 334 basis points more than seven-year German Bunds, Europe’s benchmark government securities. That compares with a yield premium, or spread, of 61 basis points for similar-maturity Spanish debt and 114 basis points on Portugal’s government bonds due 2017. Italy’s seven-year bonds yield 45 basis points more than Bunds. «Greece’s borrowing costs exceed those of Spain and Portugal, as it still needs to convince the market that it can roll over existing debt,» Michiel de Bruin, who will probably buy the securities for the $28 billion of assets he helps manage as head of euro government bonds at F&C Investments in Amsterdam, told Bloomberg. «Only then is it likely that borrowing costs will fall.» The bond auction is Greece’s first after EU leaders endorsed last week a Franco-German proposal for a mix of IMF and bilateral loans at market interest rates. European Central Bank Governing Council member Ewald Nowotny said yesterday European leaders had designed an «adequate» aid program for Greece that will help reduce refinancing costs for the debt-stricken country. «We have reached an adequate solution now and I see there is a chance for an efficient solution of the Greek problems,» Nowotny said in Prague. The plan will «stabilize» markets and «should bring down the spreads.» Under the accord brokered by German Chancellor Angela Merkel and French President Nicolas Sarkozy, each euro-region country would provide nonsubsidized loans to Greece based on its stake in the European Central Bank. Europe would provide more than half the loans and the Washington-based IMF the rest. The plan would be triggered only if Greece runs out of fundraising options.

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