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The sale of the 5-year bonds marked the first sale of long-term bonds since Greece was shut out of the debt markets in 2010. (Petros Giannakouris/AP Photo)
The sale of the 5-year bonds marked the first sale of long-term bonds since Greece was shut out of the debt markets in 2010. (Petros Giannakouris/AP Photo)

Greece sees stunning return to bond market after four years Add to ...

Greece returned to the sovereign debt markets with a bang Thursday morning through a bond sale that attracted enormous demand, indicating that global investors are convinced the euro zone crisis is truly over.

The sale raised €3-billion – about €1-billion more than expected – at a yield, or coupon, of 4.75 per cent. The yield was also better than expected; before the sale, economists predicted the treasury would have to pay 5 per cent, perhaps 5.25 per cent.

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While the sale was greeted with jubilation within the government, a car bomb that exploded in central Athens at 6am local time came as a reminder that violent social upheaval is still an ever present danger even if the Greek economy is slowly on the mend. The bomb detonated outside a Bank of Greece building, though not near the main bank building itself, causing no injuries.

The blast came the day after a 24-hour general strike that paralyzed the city, and the day before a planned visit by German chancellor Angela Merkel.

The sale of the 5-year bonds marked the first sale of long-term bonds since Greece was shut out of the debt markets in 2010. Unable to finance itself, Greece has accepted two bailouts since then, totalling €240-billion, a debt restructuring valued at €200-billion and painful austerity program dominated by tax hikes and job reductions that has yet to end.

“Today we return to the bond markets after four years,” said Greek finance minister Yannis Stournaras. “The real economy is showing encouraging signs of recovery.”

The coalition government was especially keen to launch the sale because it is desperate to avoid a third bailout and the fresh austerity conditions that would come with it. Greece has in effect been a ward of the European Union and the International Monetary Fund since its first bailout in the spring of 2010.

According to various reports, demand for the 5-year bond exceeded €20-billion, evidence that investors are keen for debt issues that come with a relatively high yield. The successful Greek sale pushed down the yields of bonds in Italy, Spain and Portugal. Italy’s 10-year bond yield is now 3.17 per cent, a drop of 1.14 percentage points in a year. During the height of the crisis, Italy’s yield’s reached 7 per cent. Only last year, Greece’s 10-year bonds traded at yields of 30 per cent or higher.

The Greek sale will encourage the governments of the euro zone’s other “peripheral” countries to raise debt as their yields drop.

In spite of the huge demand and the low yield on the Greek sale, the economy, while recovering, is far from healthy. Unemployment is at a near record 26.7 per cent and the country’s debt to gross domestic product ratio is 175 per cent, a level that no economists thinks is sustainable.

Follow on Twitter: @ereguly

 

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