Spreads rise ahead of T-bill auction

As the premium investors demand to hold 10-year Greek government bonds rather than benchmark German bunds rose yesterday, the Finance Ministry announced it will turn to the debt market to borrow some 300 million euros. The Public Debt Management Agency (PDMA), which is part of the Finance Ministry, said it will auction 26-week treasury bills on Tuesday, continuing its strategy of monthly short-term debt sales. Greece switched to monthly issues of short-term government paper from quarterly sales in September, seeking to improve cash management as it struggles to emerge from its debt crisis. Successful issues of short-term debt could set the stage for Athens to become a more active issuer again after fears of it defaulting on its burgeoning debt effectively shut it out of the market. The PDMA does not face rollovers this month. There is a small rollover next month when 480 million euros in three-month paper matures on December 24. Greece sold 1.17 billion euros’ worth of six-month T-bills at an average yield of 4.54 percent last month, down 28 basis points from 4.82 percent in a September sale. But the yield spreads of 10-year Greek government bonds over bunds have since widened to more than 900 basis points (bps). The 10-year Greek/German government bond yield spread widened by 17 bps yesterday to 922 bps, its highest since late September, as investors grow anxious over the country’s political outlook. «There are many reasons [for the increase], including the coming [local] elections this weekend, which the prime minister has defined as a referendum for the austerity measures,» Ioannis Sokos, a strategist at BNP Paribas, told Reuters. «If he doesn’t win, he will go for a general election because he needs a new mandate to continue with these tough measures.»