Greece has decided to brave the waters with a new five-year benchmark bond, the first fresh deal for nearly three years. Fortune favors the brave -- but not the greedy.
For now, a successful return to the fixed income markets matters more than securing the very best terms or the most money.
Greek bonds have been the stand-out performer in the euro area this year: the yield on the country's 2019 bond has dropped to 3.35 percent from a peak of more than 10 percent.
Market reaction to the International Monetary Fund's latest report about the country's debt sustainability was muted last week, while S&P upgraded its outlook on Greece's B- rating to positive from stable on Friday. Now is the time to capitalize on the current momentum before the August lull.
There's a fine line to tread here: the IMF will be carefully watching as Greece bumps up against the debt ceiling the Washington-based fund imposes on countries within its lending program.
Investors will be hoping they won't repeat the experience of Greece's first attempt to regain access to the capital markets. Holders of the bonds it sold three years ago have endured a wild ride in price.
When those bonds were issued in April 2014, some 550 investors turned up offering to lend the country as much as 20 billion euros. Almost a third of the 3 billion euros Greece initially issued ended up with hedge funds, an investment class not exactly known for sticking with a borrower through thick and thin; little wonder the price action in the ensuing months and years was so volatile.
Demand for the latest bond should be underpinned by an offer Greece is making to holders of its existing 4.75 percent bond due 2019. They will be able to exchange their holdings for the new bond -- or opt to receive cash. The government should then able able to decide how much new money it will take from outside investors.
A reasonable sized deal of about 3 billion euros would achieve the key goal of financial independence, without unduly upsetting its main creditors, especially if a large portion consists of investors extending their maturity.
Success this week would then allow Greece both to lengthen its debt profile and pave the way for later opportunities to raise money. With an expected coupon of about 4 percent, it should also reduce the country's funding costs.
Demand should be very healthy as investors have had very limited liquidity for several years, and the domestic banks are likely to extend out of the two-year securities into a new five-year with extra yield.
But a smaller deal would be the better long-term route for Greece than getting too greedy at the first opportunity. Three years is a long time to go without market access. The nation needs its borrowing window to remain permanently open.
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