Cost of debt drops in T-bill auction

Greece raised 1.17 billion euros yesterday in a sale of 26-week Treasury bills that was both oversubscribed and saw a drop in borrowing costs. The sale, originally for 900 million euros, received bids worth 4.22 times the total on offer and resulted in a yield of 4.54 percent, down from 4.82 percent for a similar auction on September 14, the Public Debt Management Agency (PDMA) said. Last month Greece began regular monthly short-term debt issues, maintaining a presence in the market after its financial woes left it essentially blocked from the long-term international debt market due to the prohibitively high interest rates demanded for its bonds. Although the rates demanded for Greek 10-year-bonds remain very high, the spread, or interest rate difference, as compared to benchmark German 10-year-bonds has narrowed significantly recently, by about 200 basis points – in other words, by 2 percentage points – since last month. The spread above German bonds currently stands at about 7.3 percentage points, compared to more than 9 percentage points in mid-September. Finance Minister Giorgos Papaconstantinou described the drop in financing costs yesterday as being a «very positive» development. Strategists said evidence that the international lenders who bailed Greece out were prepared to allow the country more time to repay their loans if necessary had soothed investor fears that the official timetable was too tight to rule out a default. «After all the positive news to come out of Greece recently, the lower yield is in line with expectations. The IMF comments from the weekend, China’s pledge to buy Greek bonds and the fact that Greece is on track with its fiscal targets, all that supported sentiment,» Elmar Voelker, bond strategist at LBBW, told Reuters. «The yield is still high compared with other eurozone countries, but the drop is a positive signal. I wouldn’t expect things to normalize in one big step. Even the longest road begins with a first step,» he said.

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