There was very heavy demand for a Greek 10-year bond issue on Thursday, a key test of market confidence in Athens after it unveiled another stiff austerity package, HSBC bank said.
The 10-year bond offer for 5 billion euros (US$6.8 billion) attracted bids worth 16 billion euros, with the yield, or rate of return, set at 6.38 percent, said HSBC, one of the five banks managing the offer.
The yield on existing Greek 10-year bonds rose to 6.081 percent in late trade from 5.969 percent late on Wednesday when Athens announced an austerity package worth 4.8 billion euros in response to EU pressure for it to take the action needed to cut its public deficit and debt. Bond yields and prices move in opposite directions, so a higher yield means that investors were selling the bonds.
Dealers said this may have been because some holders of the existing bond were selling to buy the new issue, with its higher rate of return.
The spread, or differential, with the benchmark German Bund widened to around 300 basis points, showing that Greece has to pay some 3 percentage points more than Germany to raise funds in the markets.
In Athens, the finance ministry said the outcome reflected the fact that “despite the difficult economic circumstances, investor confidence in the Greek economy remains strong.”
The yield achieved “is an encouraging sign of the effectiveness of government policy,” a ministry statement said.
At the same time, it said that the spread with German bonds “was still wide which shows that the price the country has to pay to service its debt remains high.”
The head of European sovereign debt at HSBC, Frederic Gabizon, said earlier on Wednesday that the yield at which the bonds were being sold was more important than the over-subscription.
Greece launched the issue early on Thursday, the day after announcing a new round of severe budget cuts to satisfy European authorities and bolster its credit rating on financial markets.
Greece needs urgently to raise money to pay debt falling due in the short term.
Earlier in the day, Greek bonds had come under pressure.
Market sources said Greece was having to offer a rate of about 6.47 percent, or a premium of about 0.40 percentage points above the rate on previous debt, to attract investors.
The pressures on the Greek bond are not “an indication of [market] anxiety” but rather an adjustment, Nordine Naam of Natixis bank, said during morning trading.
When Greece last issued bonds in January, it had to offer nearly 6.5 percent, which is considered high, and Greece has signaled that it considers getting this yield down, possibly with EU support, to be a critical issue.
The latest bond issue was launched a day after the embattled Greek government committed itself to tax increases and spending cuts in a bid to save the state 4.8 billion euros.
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