Nov. 3 (Bloomberg) -- Greece is selling 7 billion euros ($10 billion) of bonds due March 2026, offering investors a premium to buy the country’s first debt issue under its new socialist government.

The notes will be priced to yield 142 basis points more than the benchmark mid-swap rate, according to a banker involved in the deal. That compares with 126 basis points on Greece’s outstanding benchmark 15-year bonds, according to Markit iBoxx prices on Bloomberg. A basis point is 0.01 percentage point.

The bonds “offer an attractive yield and swap-spread premium over the previous Greek 15-year issue,” said Peter Chatwell, a London-based fixed-income strategist at Calyon, the investment banking unit of Credit Agricole SA. The bonds are “probably going to attract some roll interest,” Chatwell said, referring to investors that sell their holdings of existing debt to buy the new bonds.

Greece, the second most-indebted member of the European Union as a percentage of gross domestic product after Italy, got more than 9 billion euros in orders for the new debt, said the banker, who declined to be identified before the sale is completed. Finance Minister George Papaconstantinou said today he hoped the country wouldn’t need to borrow further this year.

Downgrade Risk

Moody’s Investors Service may cut Greece’s credit ratings after the country’s new government, which won elections on Oct. 4., increased estimates for the budget deficit this year to more than four times the European Union limit. The country is rated A1 by Moody’s, the fifth-highest investment-grade ranking, and two steps lower at A- by Standard & Poor’s and Fitch Ratings.

Greece’s bonds are attractive compared with 15-year notes issued by Ireland last month because they offer a similar yield spread with “more liquidity” and “stronger prospects of an improvement in the country’s fiscal position,” according to Calyon’s Chatwell.

Ireland’s Finance Minister Brian Lenihan has said he aims to cut spending to keep the deficit at about 12 percent of gross domestic product. Greece’s government said last week it was committed to structural reform and fiscal consolidation to cut its deficit below 10 percent in 2010 from 12.5 percent this year.

The 142 basis-point spread offered by Greece compares with 147 on Ireland’s 7 billion euros of 15-year benchmark bonds due in March 2025, Markit iBoxx prices show. Ireland issued the bonds at a spread of 165 basis points.

CDS Wider

The cost of hedging against losses on Greek government using credit-default swaps rose 0.5 basis point to 141.5, according to CMA DataVision prices. That means it costs 141,500 euros a year to protect 10 million euros of bonds from default for five years. The contracts cost 122 basis points Sept. 30, CMA prices show.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings Plc, National Bank of Greece SA and Societe Generale SA are managing Greece’s note sale, according to the Public Debt Management Agency.

To contact the reporter on this story: Caroline Hyde in London chyde3@bloomberg.net.

Last Updated: November 3, 2009 10:07 EST