Greece Recovery Gains Momentum in First Bank Bond Sale Since ’09

Greece’s comeback from an international bailout that roiled world markets and threatened to cause a breakup of the euro is underway.

Piraeus Bank SA (TPEIR) sold 500 million euros ($697 million) of bonds yesterday in the first public debt sale from a Greek lender since 2009, according to data compiled by Bloomberg. At the same time, Infrastructure Minister Michalis Chrisochoides said Greece will probably sell debt for the first time in four years before May as the nation seeks to rebuild its finances.

“I don’t think Piraeus could have brought this deal a year ago but now the situation in the periphery has greatly improved,” said Volker Marnet-Islinger, head of corporate bond investment at Deka Investment GmbH in Frankfurt who helps oversee about 22 billion euros of bonds. “We’re seeing huge order books for high-yield deals.”

The newfound confidence mirrors sentiment toward the euro zone as a whole. Government bond yields from the peripheral nations of Greece to Ireland have sunk to the least since at least 2010 as the recovery from the sovereign-debt crisis gains momentum. Greece’s bonds have earned 18 percent this year through March 17, the most among 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Portugal’s returned 10 percent, and Spain’s gained 5.3 percent.

Performance

The new Piraeus bond, due 2017 and priced to yield 4.52 percentage points more than the benchmark mid-swap rate, rallied 1 cent on the euro when trading began, according to brokers Jefferies International Ltd. The notes, which were initially marketed with a coupon of as much as 5.5 percent, pay interest of 5.125 percent.

“It seems like the big disappointment was that it was only a three-year deal,” said Tom Jenkins, a credit strategist at Jefferies in London. “People would have preferred a five-year to be sure of having that nice coupon for longer.”

The transaction reopens the financial market for Greek banks, showing the extent of investor confidence in the peripheral nations, and indicates the sovereign is likely to access the capital markets “imminently,” strategists at Royal Bank of Scotland Group Plc said in a note.

Greece’s bailout by the European Union and International Monetary Fund, which followed the nation’s admission in 2009 that it had a bigger budget deficit than previously reported, started the euro region’s sovereign debt crisis and was followed by an aid package for Portugal. The euro fell as low as $1.1877 in 2010 before rebounding to $1.3933 yesterday.

Still Dependent

The nation is still dependent on help. Simon O’Connor, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels yesterday that Greece reached an agreement with the so-called troika of the European Commission, European Central Bank and IMF on all “the most important policy areas” in the review of the latest adjustment program.

The deal paves the way for the disbursements of the next portion of the bailout program. Prime Minister Antonis Samaras said a review of the country’s performance in meeting the terms of its bailout “proves doubters wrong.”

“We will get the next loan tranche, the country will return to markets, with a slightly high interest rate, which will fall after, and Greece won’t remain in this drama of quarterly troika reviews,” Chrisochoides, said in an interview in Athens. The sale will be part of “a series” of positive developments before this May’s European Parliament elections, he said.

Falling Yields

Greek 10-year sovereign bond yields fell 22 basis points yesterday, or 0.22 percentage point, to 6.82 percent. The price of the benchmark 2 percent bond due in February 2024 rose 1.335, or 13.35 euros per 1,000-euro face amount, to 74.775.

Piraeus sold 5 percent, three-year notes, according to data compiled by Bloomberg. The securities were priced to yield 452 basis points more than the mid-swap rate, data compiled by Bloomberg show.

The debt may be rated Caa1 by Moody’s Investors Service, or seven levels below investment grade, according to Bloomberg data. UBS AG called it the first public debt issue from a Greek lender in five years.

Piraeus added to 31 billion euros of speculative-grade notes raised this quarter by companies in Europe, marking the busiest start to a year on record for such issuance. The average yield on the debt has dropped 48 basis points this year to 4.46 percent as of March 17, three basis points from a low reached March 11, Bank of America Merrill Lynch index data show.

Default Rates

Borrowers are taking advantage of demand for riskier debt as central banks hold interest rates at record lows and as S&P says default rates will fall to 5.2 percent next year from 5.9 percent at the end of 2013.

The average yield on euro-denominated bonds rated CCC and lower fell to a seven-year low of 8.12 percent on Feb. 27, before climbing to 8.39 percent this week, Bank of America Merrill Lynch index data show.

The outcome of the European elections won’t affect political stability in Greece, where Samaras’s coalition government is clinging to a three-seat majority in the 300-seat Parliament, said Chrisochoides, who took his first ministry post 20 years ago. His Pasok party, in government for 25 of the 40 years since the end of the military dictatorship in 1974 and now junior partner in Samaras’s coalition, won’t collapse, he said.

A March 15 poll by Alco indicated that Greece’s main opposition Syriza party, which has vowed to annul the bailout agreement with the troika, will get 19.1 percent support in the European elections, compared with 18 percent for the governing New Democracy. Pasok polled 5.1 percent, compared with a 36.7 percent result in the last European Parliament election in 2009.

Greece in the next few weeks will begin tenders for a 750 million-euro airport project on the island of Crete and a 400 million-euro highway between Corinth and Patras, Chrisochoides said. Greece will also complete a high-speed rail network by the end of 2017, he said.

To contact the reporters on this story: Katie Linsell in Madrid at klinsell@bloomberg.net; Jessica Summers in New York at jsummers20@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Jennifer Joan Lee, Michael Shanahan

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