Greek bond yields rose today as investors booked profits on the rally that preceded Greece’s return to debt markets, with even its sought-after new five-year bond succumbing to selling pressure.
Athens, which had been exiled from capital markets for four years and was bailed-out to the tune of €240 billion as its economy faltered, received bids seven times the amount in its first sale of a new bond since before its bailout in 2010.
The transaction had buoyed other euro zone government bond markets yesterday, but the new bonds faced a difficult birth as trading started today with investors losing their appetite for riskier assets.
“The euphoria is fading after yesterday’s deal,” said Owen Callan, a senior analyst at Danske Bank. “People are taking stock of the fact while its great that Greece regained some sort of access, there is still a very long road to recovery for Greece.”
Yields on the new Greek bond traded above 5 per cent today, compared with the 4.95 per cent level at which it was issued. It had traded at lower yield levels earlier on Friday, but that prompted immediate profit taking from yesterday’s buyers. Yields rise as the value of the bond falls. Although its economy looks to have turned a corner, Greece is still seen by many as a weak link within the euro zone.
The government holds only a two-seat majority in parliament and early elections are a constant risk, with the anti-bailout Syriza party leading in opinion polls. Many investors still fear social unrest as unemployment, although falling, remains more than twice the euro zone average at almost 27 per cent. “We still see Greece as pretty vulnerable, they have political issues ... social tensions are quite high,” said Jozsef Szabo, head of global macro at Aberdeen Asset Management, a firm that keeps away from Greece.
Yields on older Greek bonds jumped, with the 10-year yield rising more than a quarter of a percentage point to 6.25 per cent.
In the run-up to the sale, Greek 10-year yields had fallen to four-year lows below 6 per cent. “It’s quite obvious that many of the guys that bought the bond were not the buy-and-hold type. They were just fast money,” one trader said.
At their peaks following a March 2012 restructuring that imposed losses on debt holders, Greek bonds yielded above 30 per cent. Other euro zone bond yields rose as well on Friday, while global stock markets tumbled. Given the bigger picture, some market participants said the new Greek bonds were doing well to sell off less than their longer-dated peers. “The general market tone is weaker today but even with that the new bonds are holding up,” said Andrew Salvoni at Morgan Stanley, one of the bankers managing the syndicated sale.
Reuters
