Greece may be able to skip the 20-billion-euro plus hurdle of public borrowing in April-May by paying a high price but this does not mean it is off the hook. However, talk about the country’s borrowing needs seems to have helped divert attention from another area of the economy where the liquidity risk may be more acute. The EU-IMF rescue package that EU leaders agreed on March 25 at the suggestion of German Chancellor Angela Merkel and French President Nicolas Sarkozy did not help Greece borrow at the level of interest rates which government officials in Athens had hinted at earlier. The conditional package was correctly seen by the markets as providing a financial prop in case the country had no access to the markets. In so doing, it reduced the immediate liquidity risk but not the medium-term solvency risk. Facing debt maturity of some 20 billion euros in April-May along with coupon payments on bonds and budget deficit financing needs, Greece tried to take advantage of the situation and raise a few billion euros by selling bonds. However, it again made many market players nervous for several reasons. First, it opted for a 7-year bond issue that targets a specific type of investor a few days before Easter when capital markets are generally less liquid. Second, it priced the bonds in a way that discouraged other investors to submit bids. One may understand why the state chose to borrow via a 7-year bond. It had previously issued a 5-year bond worth 8 billion euros and a 10-year bond worth 5 billion euros and did not want to upset their holders by adding to the supply at this point. Also, it did not want to issue the much more marketable 3-year bond because the spreads over Germany at this maturity are much higher than in longer terms such as the 5- or the 10-year tenor but most importantly Greece does not want to burden its maturity profile with a few more billion in the next two-to-three years. However, the most important thing that made the markets nervous was the decision to set the coupon on the 7-year bond at 5.90 percent, that is, lower than the 6.0 percent plus many in the market thought should have been the case, and priced to give a yield-to-maturity of 5.99 percent. Bankers believe the decision had political motives in the sense that it aimed to show to the general public that the country was able to borrow at cheaper rates following adoption of the EU-IMF package which was presented by many locally as a «triumph for Greece and the eurozone.» Therefore, there was no surprise when local banks had to step in and buy 43 percent of the 5-billion-euro bond issue, sending the wrong message to international markets and pushing up Greek bond yield spreads. The 10-year Greek bond yields more than 340 basis points over Germany compared to 290 points in early March when the previous 10-year bond was issued. According to Petros Christodoulou, the head of the Public Debt Management Agency (PDMA), the country will have to raise some 12 billion euros to cover its borrowing needs by end-May. This is not an insurmountable amount and one should expect the country to raise the money even if it pays a high cost. Although Greece may be off the hook for a few months given that the next large refinancing operation is in the fall, this market siege perpetuates the «silent sovereign run» that is in progress. This refers to the careful re-examination by European and other foreign banks of their Over-The-Counter (OTC) exposure with Greece and perhaps some other Southern European countries. This new risk management approach comes as no surprising since it is one of the repercussions of the global credit crisis. It mostly concerned the private sector and not countries whose budgets were in a mess, mainly Greece at this point. However, it looks as if the international financial sector has become alarmed at the Greek sovereign risk and has started gradually limiting the credit lines available to local private entities and Greek banks in particular. This silent run is not easily detectable unless somebody is high up in the local banking sector. Of course, all banks are not the same and therefore the impact is different. However, as time goes by and the market siege continues, things are becoming tougher for some banks since deposits are reduced, the interbank market and wholesale markets are closed and the only source of funding is coming from the European Central Bank. So, Greece may well be able to raise 12 billion euros or more by the end of May. However, this may not be enough to stop the silent sovereign run that some Greek banks are feeling more and more as time progresses.