Greece Was a Turkey, and the Market's Going to the Dogs: Gadfly

(Bloomberg Gadfly) -- Greece almost makes it look easy. It issued a new 3 billion euro ($3.7 billion) seven-year bond on Thursday, at a very healthy 3.5 percent yield, stepping into a briefly open window for raising money during the most torrid week for markets in years.

The security is now trading very close to 4 percent. Ouch. The benefits of going ahead with the sale went to Greece rather than to investors. With a 6 billion-euro order book there was no lack of demand -- but there is buyer's remorse now. 

Greece Was a Turkey, and the Market's Going to the Dogs: Gadfly

It's the first sovereign syndicated new issue to perform badly in Europe so far this year. This could make it troublesome for the region's other governments to bring deals on top of an already-heavy regular auction schedule. Greece may just be one turkey, but investor demand is going to become a lot pickier.

And there's plenty to choose from. Governments have been crowding out the syndicated new issue market even more this year, comprising 26.5 percent of deals versus an already-strong 23 percent at this stage in 2017. If supra-nationals and agencies are included then half of all new syndicated deals are from an official institution. It's a curious result, given that the European new-issue market is supposed to be much more about companies.

For example, the European Financial Stability Facility -- created to fund Greece's bailout -- has already issued half of its 28 billion euro annual plan. The EFSF has come three times in 2018 with 13.5 billion euros in maturities ranging from 6 to 23 years. That is an almost indecent rush to complete its annual funding schedule as early as possible. It's smart for the issuer -- less so for the investor.

Borrowers can try to front-load sales in a low-rate environment, but with more central banks getting comfortable with tightening, investors are not going to play that game unless the yield is generous. It's an increasing struggle, given that the German benchmark 10-year yield has risen sharply since the mid-December lows of 30 basis points. The yield famine is easing up.

Greece Was a Turkey, and the Market's Going to the Dogs: Gadfly

On top of about 20-25 billion euros due this week in regular auctions from the likes of Italy and Germany, Belgium is road-showing a syndicated 15-20 year green bond. Netherlands may issue a 10-year security, though that may go well given that it's a relatively rare AAA name. Were a borrower with a more checkered past, such as Spain, to come with a 15- or 30-year syndicated deal, it would find a much tougher hurdle. 

Governments and institutions eyeing the scene may find it prudent to offer a shorter maturity or wait for a more stable market.

Greece Was a Turkey, and the Market's Going to the Dogs: Gadfly

This may be some time -- the double election date of March 4 is looming. That's when the German Social Democratic Party will hold a membership vote on ratifying the grand coalition, and Italians may or may not choose a new government.  

While 2018 isn't nearly the year of politics that 2017 was, would-be bond buyers would be foolish to overlook some key dates. Just as they would be to dive headlong into juicy new-issue premia without looking carefully first at the risks.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

To contact the author of this story: Marcus Ashworth in London at

©2018 Bloomberg L.P.

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