Borrowing costs in recovering Greece fall to pre
Credit: Reuters/Ralph Orlowski
The headquarters of the European Central Bank (ECB) are pictured in Frankfurt June 6, 2013.
The chairman of euro zone finance ministers Jeroen Dijsselbloem said on Tuesday Greece was fully funded for the next 12 months and had ambitions to soon return to the market rather than ask for a third bailout.
Even so, German Finance Minister Wolfgang Schaeuble said on Wednesday Berlin will support further financial help for Greece, should the country require more.
Athens is expecting to get the next tranche of its aid deal at the end of April after impressing its European Union and International Monetary Fund lenders with a strong budget performance and a smaller-than-expected economic contraction.
It plans to issue up to 2 billion euros of five-year debt in the first half of the year in what would be one of the fastest market comebacks by a sovereign that has restructured its debt. Primary dealers expect strong demand.
All those factors, coupled with investors' hunt for high-yielding assets to boost returns in an environment of record low interest rates, helped push 10-year Greek yields to as little as 6.31 percent on Wednesday.
That was the lowest since before Greece was first bailed out in 2010 and compares with yields above 30 percent two years ago.
'Greece is becoming interesting... They've got the green light for the new tranche and they are also expected to come to the market, which is very important... as it would benefit their credit ratings,' ING rate strategist Alessandro Giansanti said.
'Also a lot of investors are looking for yield ... and are giving (Greece) a low probability of default because the private share of its debt is very limited so probably they are not going to do another restructuring.'
Greece restructured its debt in March 2012 by exchanging outstanding bonds for cheaper ones, imposing heavy losses on private bondholders. The result was that debt it owes to the private sector is now only about one tenth of total debt.
Imposing further losses on private bondholders would thus have little impact on the sustainability of the country's debt burden, which stands at roughly 1.7 times economic output.
FINE MARGINS
Investors' main worries revolve around the fragility of the ruling coalition, which only commands a two-seat majority in parliament. Any early election could see the anti-bailout Syriza party taking over, an outcome that would raise concerns about Greece's future in the euro zone.
'When coalitions come down to fine margins, investors need to monitor the situation closely,' said Colm McDonagh, head of fixed income for emerging markets at Insight Investment, which holds Greek bonds.
'What any investor looks for is stability in policy, and should that be disrupted by a change of government that would certainly raise concerns.'
At the other end of the credit spectrum, German 10-year yields rose 2 basis points to 1.60 percent.
Germany sold 2.418 billion euros of five-year bonds, attracting bids worth 1.9 times the amount sold, compared with 1.4 times at a previous sale one month ago.
Analysts said this week's pick up in yields, the small amount on offer and some bets that the European Central Bank may point to further policy easing at its meeting on Thursday were the main factors behind the good result.
(Reporting by Marius Zaharia; Editing by Catherine Evans)
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