Greek Bill Demand Touches Highest Since 2015 as Stocks Rally

  • Bid-to-cover at auction for bills rises to 1.6 from 1.3
  • Recent deal with creditors spurring demand, Citigroup says

Demand for Greek bills rose to the highest level in more than two years at an auction on Wednesday, as stocks in Athens extended their longest gaining streak since 1999, adding to signs that global investors are warming to the nation’s assets.

The bid-to-cover ratio for the 13-week bills was 1.61, the strongest it has been since Alexis Tsipras’s government was elected to office, in January 2015, on a promise to end austerity. With the exception of one auction, every sale of T-bills since February 2015 has seen a bid-to-cover ratio of 1.3. About 25 percent of the offers came from foreign investors, according to a person familiar with the situation, who asked to speak under condition of anonymity as he isn’t authorized to speak publicly.

The auction came a week after Greece resolved the latest impasse over the terms of its bailout program with international creditors, unlocking the way for debt-relief talks and the disbursement of the next tranche of emergency loans. Wednesday’s sale also signaled an increased interest from investors to buy one of the most illiquid government bonds in the euro zone.

“I think (the outlook for Greek bonds) is definitely improving, helped in large part by the recent agreement with the creditors that opens the way for additional funding, possible participation in ECB’s quantitative-easing program, eventual debt-relief measures and Greece being able to come back to the market and issue bonds,” Zoeb Sachee, head of European government bond trading at Citigroup Inc. in London said in emailed comments. Sachee declined to comment on whether his bank participated in the auction.

Greek Asset Bulls Need Debt-Relief Nod to Keep Momentum Going

The yield on Greece’s two-year bonds was two basis points lower at 5.46 percent as of 5:45 p.m. in Athens, taking the drop for this month to 92 basis points.

Stocks rallied too, with the benchmark Athens Stock Exchange General Index rising for a 12th consecutive day, its longest gaining streak in 18 years. The gauge gained 1.8 percent, touching the highest since a prolonged shutdown at the end of June 2015, when Tsipras called a referendum against austerity measures.

“The chances are rising that Greece will get a debt relief, which in the best case might enable the European Central Bank to buy Greek bonds as part of its quantitative easing program, lowering Greek yields further,” Carsten Hesse, a London-based economist at Berenberg, said in emailed comments after the sale.

Still, investors could be getting ahead of themselves, analysts say. Even as the latest agreement between Greece and its creditors on the technical issues of the second bailout review spurred enthusiasm among investors, more steps may be needed for that positive sentiment to last, with buyers looking for concrete measures on debt relief.

“The market is now pricing debt relief and a participation in quantitative easing,” Athanasios Vamvakidis, head of Group-of-10 currency strategy at Bank of America-Merrill Lynch in London, said in emailed comments. “It may be running ahead of itself. We are not there yet.”

— With assistance by Cecile Vannucci

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