PROPOSALS TO allow heavily indebted euro zone nations such as Greece and perhaps Ireland to buy back their own distressed bonds using loans from a bailout fund have met a sceptical reaction.
Spanish and Portuguese bond markets rallied amid hopes that euro zone leaders would take action to resolve the crisis that has pushed up sharply borrowing costs for some single currency members.
Analysts warned however that the buyback proposal, one of several being considered as part of wide-ranging deliberations on overhauling the euro zone’s €440 billion bailout fund, meant that it would need to be increased in size.
The strategy would be aimed at Greece in particular. It would in effect enable the country to restructure its debt in the open market. Optimism over policymakers’ efforts to tackle the euro zone’s problems have eased pressure in the peripheral bond markets.
Harvinder Sian, senior euro rates strategist at RBS, said: “The idea of a voluntary debt restructuring is unlikely to result in a big fall in Greece’s debt to GDP.”
Ralf Preusser, head of European rates research at BofA Merrill Lynch Global Research, said: “The euro zone bailout fund could not lend Greece money to buy back its loans without doubling its size. It would also leave the EU as the biggest creditor of Greece, which I don’t think is politically feasible.”
Other analysts were more positive.
Steven Major, global head of fixed income research at HSBC, said: “In the absence of other forms of restructuring, it makes sense to buy cheap bonds back now.” – (Copyright The Financial Times Limited 2011)
