Greek Budget Crisis Adds 13 Billion Euros to Interest (Update1)

March 31 (Bloomberg) -- Greece may pay about 13 billion euros ($17.5 billion) more in interest over the life of the debt it sells this year than it would have if yields had stayed at their pre-crisis levels relative to Germany’s, according to data compiled by Bloomberg and Credit Agricole SA.

Interest on the three bonds it sold this year, including a seven-year note offered this week, will amount to 7.7 billion euros over the life of the securities, compared with 3.8 billion euros if they had sold them at the average extra yield, or spread, over German debt that prevailed between 2000 and 2008, the data show. Greece will incur a further 18.9 billion euros of interest on this year’s remaining issuance, compared with 9.4 billion euros before the crisis began, according to Bloomberg calculations based on Credit Agricole Corporate and Investment Bank data.

Greece is struggling to lower its borrowing costs even after the European Union and the International Monetary Fund crafted an aid package that would be triggered if the nation can’t raise sufficient cash from capital markets to cover its financing needs. Prime Minister George Papandreou’s government, which is seeking to narrow a budget deficit that is more than four times the EU’s limit, must raise as much as 10.5 billion euros by the end of May.

“Greece needs to get through its current funding and start growing at a decent rate so this large amount of debt doesn’t snowball,” said Peter Chatwell, a fixed-income strategist at Credit Agricole in London. “The market is currently reflecting disappointment that the seven-year deal didn’t outperform and Greek spreads are likely to stay where they are for now.”

Sale Forecast

Greece sold 8 billion euros of five-year notes on Jan. 25 to yield 3.81 percentage points more than benchmark German securities of similar maturity, compared with an average spread of 0.26 percentage points before the crisis. It issued 5 billion euros of 10-year bonds yielding 3.25 percentage points more than German debt on March 4, compared with an average 0.34 percentage points.

Credit Agricole predicts that this year Greece will sell 8 billion euros of five-year notes, 4 billion euros of 15-year bonds, 8 billion euros of 10-year securities, 3 billion euros of 30-year bonds and 5 billion euros of five-year floating notes.

Dollar Bond

Greece plans to sell a global bond priced in dollars in late April or early May after a delegation visits the U.S., Petros Christodoulou, director general of the Public Debt Management Agency, said in a Bloomberg TV interview today. Greece must raise 11.6 billion euros in bonds before the end of May after April funding was “taken care of,” Christodoulou said. He declined to say how big the dollar issue might be.

Greece’s seven-year notes fell yesterday on the first day of trading, with the yield rising to 6.078 percent from an issue yield of 6.001 percent.

Greek bonds fell for a third straight day, pushing the yield on the two-year note up 14 basis points to 5.19 percent as of 9:13 a.m. in London. The 10-year yield rose 4 basis points to 6.56 percent.

“We are continuing to muddle our way through the funding hump that Greece has over the next few weeks,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to clients yesterday. “This story will run and run as these levels of funding relative to core Europe aren’t really sustainable.”

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net