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The Latest Buzz in the Bond Market? Greece Is Back

(Bloomberg) -- There’s a buzz in the bond market: Greece is back.

As the country nears an exit from years of economic bailouts, government debt yields have fallen dramatically from the 2012 peak in a sign that investors are warming up to the prospect of its return to debt markets. And issuers -- sovereign and other -- are wasting no time in getting things going.

Finance minister Euclid Tsakalotos has been on a marketing tour through the world’s financial capitals amid speculation that Greece will sell more bonds this year. Hellenic Telecommunications Organization SA, the nation’s biggest corporate borrower, has attracted more than 1.8 billion euros ($2.1 billion) of investor orders for its 400 million-euro sale of four-year notes.

The Latest Buzz in the Bond Market? Greece Is Back

Things are looking a lot better for the country, after being one of the worst-hit by the European debt crisis and having to rely on 300 billion euros in foreign aid since 2010. Greece now runs a budget surplus and was upgraded last month by S&P Global Ratings to B+. While that is below investment grade, the rating boost combined with yields that are still among the euro area’s highest should help spur demand for a fresh bond offering.

“It will definitely have demand, there’s no question about that,” Scott Thiel, a money manager in London at BlackRock Inc., said in a telephone interview. “Dollar investments are very expensive and there’s nothing in Europe that’s going to offer this kind of yield.”

Greece’s 10-year government bond yield was 3.88 percent Thursday, down from 7.89 percent two years ago and about 40 percent in 2012. It is still well above similar-maturity rates of 2.70 percent in Italy, 1.31 percent in Spain and 0.37 percent in Germany.

Hellenic Telecommunications, whose biggest shareholder is Deutsche Telekom AG with a 45 percent stake, cut the yield at its debt sale to a range between 2.5 percent and 2.625 percent from an initial target of about 2.75 percent -- a sign of buoyant demand. CreditSights and Kepler Cheuvreux say the company may be set for a credit upgrade to BB+, from BB currently.

While Greece has no financing needs until 2022, Prime Minister Alexis Tsipras may want to take advantage of the drop in borrowing costs and the improved investor sentiment by selling bonds. The country has successfully held two debt sales since July 2017.

Scant Trading

“Just because they don’t have cash needs, it doesn’t mean it’s unimportant to find where the bond market will price,” said Andrew Jackson, head of fixed income at Hermes Investment Management. “Now is a good time to do it.”

Greylock Capital Management -- which invests in undervalued, distressed and high-yield assets and has $1 billion under management -- would like to see Greece sell securities maturing in 20 to 30 years, according to Diego Ferro, a co-chief investment officer at the fund. Meanwhile, Algebris Investments money manager Alberto Gallo still sees the nation’s bonds due in less than 10 years as “undervalued.”

Still, there’s a case for caution. Greece’s debt as a proportion of its gross domestic product remains the highest in Europe at 180 percent, while its unemployment rate is at 20 percent. Per-capita GDP now trails that of Estonia after being more than double the former Soviet nation’s before the crisis, according to European Union statistics.

The current lack of trading in Greek bonds also damps their appeal, especially after the recent turmoil in the Italian debt market. Bank of Greece data show that turnover on the electronic secondary market totaled 331 million euros last month, down from 434 million euros in May. That compares with a peak of 136 billion euros in September 2004.

While a new debt sale would provide an opportunity to enter the market, getting out is a more challenging affair, BlackRock’s Thiel said.

©2018 Bloomberg L.P.