Greek Bill Sale Fails to Disguise Budget-Deficit Concern, BNP Paribas Says

Greece’s success in drawing increased demand for its three-month bills at today’s debt auction fails to disguise the country’s struggle to convince investors it will avoid a default, according to BNP Paribas SA.

The yield premium investors demand to hold 10-year Greek bonds over German bunds climbed to a record as the nation sold 1.95 billion euros ($2.6 billion) of three-month Treasury bills. While investors bid for 4.61 times the securities offered, up from 3.23 at a sale in January, the country’s borrowing costs more than doubled. Greece’s budget deficit, at 12.9 percent of gross domestic product, is the largest in the European Union.

“If there was a strong recovery in confidence the 10-year would rally, which has not been the case,” said Patrick Jacq, a fixed-income strategist at BNP Paribas in Paris. “It’s very fragile. Greece remains under pressure.”

Surging bond yields for Prime Minister George Papandreou’s government prompted EU ministers to agree to a bailout plan on April 11, offering loans of as much as 45 billion euros should the southern European nation request the aid. Negotiations over the conditions of the plan will run into May, Finance Minister George Papaconstantinou said today.

Greece sold the 13-week securities to yield 3.65 percent, more than the January sale’s 1.67 percent. The yield was lower than some analysts predicted, with Steve Major, global head of fixed-income research at HSBC Holdings Plc in London, estimating 4.5 percent.

Greek 10-year bond yields climbed 29 basis points to 7.98 percent as of 3:54 p.m. in London. The yield premium over bunds widened to 476 basis points, the most since Bloomberg began collecting the data in 1998. The two-year yield was 24 basis points higher at 7.53 percent.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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