Greece Sells Bonds as Deficit Cuts Fuel Protest

March 4 (Bloomberg) -- Greece began selling 5 billion euros ($6.8 billion) of 10-year bonds after Prime Minister George Papandreou’s promises to reduce Europe’s largest budget deficit by cutting wages and spending prompted protesters to occupy the finance ministry.

The government is offering a premium to sell the new notes, pricing them at a spread of 300 basis points more than the mid- swap rate, or a yield of 6.39 percent. That compares with the 6.1 percent interest on Greece’s existing benchmark issue due July 2019, according to data compiled by Bloomberg. The bond sale marks a test of investor response to Papandreou’s austerity measures. German Chancellor Angela Merkel snubbed his bid for assistance after he announced his third package of deficit cuts this year, saying a meeting in Berlin tomorrow won’t be “about aid commitments.” “Sentiment toward Greece has improved after the budget announcements and they’re taking advantage of that, while the pricing is pretty much in line with what we expected,” said Michiel De Bruin, who helps manage $28 billion of assets as head of euro government bonds at F&C Investments in Amsterdam, and expects to invest in the deal.

The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, rose 4 basis points to 2.90 percentage points at 11:26 a.m. in London after yesterday’s 19 basis point drop.


German Opposition
While Papandreou is risking a backlash at home to meet European Union demands for more cuts, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece. “There would be no understanding in Germany for bailing out Greece,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “It’s a bit of catch-22 situation: if you give in to Greece and you put 5 billion or perhaps even 10 billion into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn’t, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece.” The EU is devising a plan to grant Greece about 25 billion euros in emergency aid should the need arise, German lawmakers have said, enough to cover the maturing debt. One option could involve using state-owned lenders such as Germany’s KfW Group to buy its bonds.


Athens Protests
In Athens, about 200 members of the PAME union, aligned with the Communist Party, were reported at the finance ministry and protesters also took over the nearby General Accounting Office, according to a police spokeswoman. Another group blocked a central road, snarling traffic. The demonstrations followed the Cabinet’s backing yesterday of 4.8 billion euros ($6.6 billion) of cuts and Papandreou’s statement that Greece was prepared to turn to the International Monetary Fund as a last resort. “We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers yesterday, according to an e-mailed transcript. “It is a historic moment for the European Union.” Papandreou’s Cabinet endorsed a package of revenue-raising and budget-cutting steps, including higher fuel, tobacco and sales taxes and a cut of 30 percent in three bonus payments to civil servants on top of a wage and benefits freeze.


‘Coordinated Action’
For now, European governments have not stepped up since a statement at a Feb. 11 EU summit promised “determined and coordinated action” to support Greece. “There’s no need for such a thing at this point in time,” French Finance Minister Christine Lagarde said late yesterday on Sky television. “If it was required, the partners in the club would be available to restore stability.” After meeting Merkel in Berlin, the Greek leader is due in Paris two days later for talks with French President Nicolas Sarkozy. Merkel’s comments were the clearest signal yet that Germany isn’t convinced. “I expressly want to say that Friday isn’t about aid commitments, but about good relations between Germany and
Greece,” Merkel said yesterday in an interview with N-TV, according to a transcript provided by her office. Greece’s steps are “an important signal” toward restoring confidence in the euro.


Papandreou Package
Greece has pledged to trim a deficit of 12.7 percent of gross domestic product to 8.7 percent this year. Concern that Greece won’t be able to tame the shortfall saw the euro lose almost 5 percent against the dollar this year. With today’s sale, the government wants to avoid a repeat of its sale of five-year notes in January, when the debt tumbled on the first day of trading. Greece faces more than 20 billion euros in debt redemptions in April and May. Greece has blamed market speculators for fueling the decline in its securities. European officials have warned hedge funds that they shouldn’t try to profit from the woes of the region’s nations. U.S. authorities have told some hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests. Banks and regulators across Europe were summoned by the European Commission to discuss regulation of the market for sovereign credit-default swaps in the wake of the Greek debt crisis.

Financial Times
By David Oakley
Published: March 4 2010 09:50 | Last updated: March 4 2010 13:09

Greece will borrow from the capital markets on Thursday in its first bond deal in more than a month, in what may prove to be a turning point in the
country’s debt crisis. Athens will sell about €5bn in 10-year bonds in the most significant debt deal of the year, insofar as much rests on its ability to calm the markets and reassure investors after months of turbulence.

Greek equities responded well as early indications suggested the sale would be a success, with orders reaching about €7bn in the first hour of
bookbuilding for the €5bn issue. The Athens General index rose 1.2 per cent to 2,035.38, outperforming the pan-European benchmark FTSE Eurofirst 300, which remained flat in early afternoon trade.But the country’s sovereign yields rose as prices fell in anticipation of the extra supply.The 10-year bond yield rose 10.2 basis points to 6.12 per cent, taking the spread over the equivalent German bund to 296bp, up 6 basis points from
Wednesday’s close.The five banks managing Thursday’s sale, which should be priced later, are HSBC, Barclays, Nomura, National Bank of
Greece and Piraeus‬ Bank.

Investors accused the banks on the previous bond syndication, which was priced in late January, of mismanaging that deal as the bond sold off sharply once it started trading following controversy over reports – later denied – that Greece was wooing Chinese investors to buy the debt. Credit Suisse, Deutsche Bank, Morgan Stanley and Goldman Sachs were among the banks that managed that syndication.Significantly, Goldman will not be involved in the deal this time following controversy over the bank’s links with Athens, although it is typical market practice for sovereigns to alternate the banks they use to manage syndications. Banks would not usually be expected to be included in two successive syndications. Greece needs to find around €20bn of funding over the next three months, so it is critical for the country to be able to attract buyers in the market or it will have to turn to the EU – or even the International Monetary Fund – for financial assistance.

Gary Jenkins, head of fixed income research at Evolution, said: ”This is the most important deal so far this year for Greece, the markets and the
eurozone itself. However, even if the Greeks are successful today, they still need to come to the market again. The Greek debt crisis is far from over, even with strong demand for the bonds today.”Spain was also tapping the market for funds as it sold €4.5bn of new benchmark five-year bonds. The auction was reported to have been 1.5 times oversubscribed.The yield on existing five-year Spanish government bonds rose 0.3bp to 2.67 per cent.