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Photographer: Kostas Tsironis/Bloomberg
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New Greek Government Sells Bond Days After Election Win

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New Greek Government Sells Bond Days After Election Win

  • Greece to sell seven-year note taking advantage of low yields
  • Deal completes 2019 financing program, new sale may come later
Municipal Workers Garbage Strike As Greece Gets Investor Thumbs Up
Photographer: Kostas Tsironis/Bloomberg

Greece’s new government is wasting no time capitalizing on a sharp drop in borrowing costs across Europe and support among investors for its fiscal reform.

Only nine days after winning national elections, the administration of Prime Minister Kyriakos Mitsotakis is pouncing on record-low yields for Greek debt to sell a new seven-year bond. The country wants to finalize its annual financing program and signal that better days are coming for the Greek economy.

Greece will sell 2.5 billion euros ($2.8 billion) of a July 2026 bond at a yield of 1.9%, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The offer drew above 13 billion euros in orders.

FINAL TERMS: Greece EU2.5b 7Y 1.9% Yield

If investors who haven’t previously looked at the country “are convinced that Greece will keep improving fundamentally going forward, then current yields, although low by historical standards, are still high enough to entice them to start participating in this market,” said Dimitris Dalipis, Head of Fixed Income at Alpha Trust in Athens. “There is a shortage of yield alternatives in euro bond markets,” he said.

Greek bonds maintain record low path opening way for new debt sales

The move comes as a global bond rally has turned many of the euro-area’s benchmark yields negative, pushing investors into the only remaining higher-yield debt of Italy and Greece. The new Greek government is moving ahead with the sale even before starting negotiations with creditors for the 2020 budget and a new medium-term fiscal program.

Mitsotakis wants to implement ambitious tax reform that will reduce the burden for taxpayers and help boost investments. Measures are expected to be spread over the next three years and cost some 6 billion euros.

Greece’s European partners have already warned that any such action should not jeopardize the country’s already-agreed fiscal path. That deal sees Greece achieving annual primary surpluses equivalent to 3.5% of economic output until 2022 in order both to repay debt obligations and to put public debt on a sustainable course.

Rating Updates

Greece currently enjoys a cash buffer of around 37 billion euros so the country isn’t in need of fresh funds to meet its obligations. The new issue is another sign that country is returning to normality as the sale will mark the completion of the 2019 financing program as it was announced in December. Under that plan, the nation has already issued a five-year note and 10-year bonds raising 5 billion euros.

The new government is also anticipating some good news in the coming weeks that would help it to sell another bond in 2019. Fitch Ratings is due to announce its latest report on Greece in early August and by the end of the same month Moody’s is scheduled to follow. Both rating firms may upgrade Greece’s sovereign status which is still well below investment grade.

Bank of America Corp.’s Merrill Lynch, Deutsche Bank AG, Morgan Stanley, Nomura Holdings Inc. and Societe Generale SA are the bookrunners for the seven-year bond. The finance ministry has secured a much lower cost than the seven-year bonds it priced February 2018 at a yield of 3.5%. Greece paid two percentage points more for a 10-year bond issued in March.

Italy also took advantage of lower borrowing costs by issuing three-, seven- and 50-year debt last week.

— With assistance by Hannah Benjamin, James Hirai, and Paul Cohen

(Updates with final terms in third paragraph.)