Greece plans to sell a global bond in dollars in the next two months to help raise 11.6 billion euros ($15.6 billion) in funding requirements by the end of May after investors lost money on its most recent sale.
Greece needs to borrow a total of 32 billion euros this year, including May,Petros Christodoulou, director general of the Public Debt Management Agency, said today in a Bloomberg Television interview. He declined to say how big the dollar issue might be.
Seven-year notes sold by the government this week fell even after the European Union and the International Monetary Fund crafted an aid package that would be triggered should the nation be unable to raise sufficient cash from capital markets to cover its financing needs. Greece may pay about 13 billion euros more in interest on the debt it sells this year than it would have to had yields stayed at their pre-crisis levels relative to Germany’s, according to data compiled by Bloomberg and Credit Agricole Corporate and Investment Bank.
“A dollar bond sale means that they don’t have to go to the long end of the curve after they’ve sold” five-, seven- and 10-year debt this year, said Charles Diebel, senior fixed-income strategist at Nomura International Plc in London. “They may raise 7 billion euros in a three-year deal, leaving them 4 billion euros to raise in dollars to complete their May funding.”
Spread Widening
Greek bonds fell for a third day, pushing the yield on the two-year note up 17 basis points to 5.22 percent as of 10:26 a.m. in London. The 10-year yield increased 7 basis points to 6.58 percent. The seven-year notes sold on March 29 have fallen 2.3 percent since issue.
The extra yield, or spread, that investors demand to hold Greek 10-year bonds instead of benchmark German bunds climbed 12 basis points to 345 basis points, the most since Feb. 25.
Christodoulou said he wants the nation’s 10-year bonds to yield about 250 basis points over Germany by the end of European summer and a “low 200” basis-point spread to bunds by the fourth quarter.
Interest on the three bonds it sold this year, including a seven-year note offered this week, will amount to 7.7 billion euros over the life of the securities, compared with 3.8 billion euros had they sold them at the average extra spread over German debt that prevailed between 2000 and 2008, the data show. Greece will incur a further 18.9 billion euros of interest on this year’s remaining issuance, compared with 9.4 billion euros before the crisis began, according to Bloomberg calculations based on Credit Agricole data.
‘Snowball’
“Greece needs to get through its current funding and start growing at a decent rate so this large amount of debt doesn’t snowball,” said Peter Chatwell, a fixed-income strategist at Credit Agricole in London. “The market is currently reflecting disappointment that the seven-year deal didn’t outperform.”
Greece sold 8 billion euros of five-year notes on Jan. 25 to yield 3.81 percentage points more than benchmark German securities of similar maturity, compared with an average spread of 0.26 percentage points before the crisis. It issued 5 billion euros of 10-year bonds yielding 3.25 percentage points more than German debt on March 4, compared with an average 0.34 percentage point.
Credit Agricole predicts that this year Greece will sell 8 billion euros of five-year notes, 4 billion euros of 15-year bonds, 8 billion euros of 10-year securities, 3 billion euros of 30-year bonds and 5 billion euros of five-year floating notes.
“We are continuing to muddle our way through the funding hump that Greece has over the next few weeks,”Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to clients yesterday. “This story will run and run as these levels of funding relative to core Europe aren’t really sustainable.”