Greek Notes Reflect Year of Turmoil as Debt Drama Sees No End

One year ago it was looking a lot rosier for Greece as the nation successfully sold three-year notes. Now, after months of wrangling between the government and its creditors, yields on that debt are about eight times higher and the outlook for future debt sales looks bleak.

July 16 greek note

While Greece’s finance ministry hailed last year’s sale via banks as a sign of investor confidence in the nation, the subsequent price fluctuations have largely reflected the turmoil in Greece’s politics and finance. The yield jumped as high as 63 percent this month after Greek voters against further austerity measures demanded by its creditors in return for a third bailout in five years.

“A year can make a big difference,” said Orlando Green, a fixed-income analyst at Credit Agricole SA’s corporate and investment-banking unit in London. “It was always going to be a danger when we had an anti-austerity party come in. If you have a renegotiation of debt and a more responsible government in terms of fiscal policy, then credibility can return but that will take time.”

Those investors that bought the notes may have been disappointed. Greek securities lost 30 percent in the 12 months through Wednesday, the worst performer among sovereign-debt markets tracked by the Bloomberg World Bond Indexes.

The yield on Greece’s 3.375 percent notes due July 2017 rose 26 basis points, or 0.26 percentage point, to 27.48 percent as of 11:23 a.m. London time Thursday. The price fell 0.265, or 2.65 euros per 1,000-euro face amount, to 66.365. The securities were sold at a price of 99.65 percent of face value a year ago.

Turmoil in the country that sparked Europe’s sovereign debt crisis looks set to continue. While the nation’s parliament voted to accept the austerity that is a precondition of further aid Tuesday, German Finance Minister Wolfgang Schaeuble said the only way Greece will get a debt reduction is to leave the euro. That prompted Credit Agricole’s Green to liken the situation for investors to watching a long-running soap opera.

“The story arc is so long that you end up seeing the same storyline each year,” he said. “Wait a minute hasn’t that murderer been caught yet? Or don’t they know who the father is yet? That’s Greece.”

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