Greek debt suppliants play to thin houses in U.S.
Greek debt suppliants are playing to thin houses in the United States. The target for a dollar-denominated bond sale by the euro zone’s problem child once stood at $5-10 billion. That now looks like wishful thinking. A Greek official speaking to Dow Jones Newswires said $1-4 billion is more likely. Investors’ wariness reflects the unsentimental reality of Greece’s predicament.
One blow to a bigger bond sale came from Pacific Investment Management, the giant U.S. bond fund firm. PIMCO told Reuters earlier this week that it would sit the bond sale out. With roughly $1 trillion of assets under management, the group’s vote carries serious weight.
It’s not surprising if U.S. investors are unenthusiastic. A $45 billion euro zone and International Monetary Fund aid package is on the table for Greece — but it hasn’t been decided if or when to pull the trigger, and money hasn’t yet changed hands. More talk between Greek officials, European counterparts and the IMF are set for next week. So there’s a sense of limbo, at least until Greece and its neighbors agree exactly what to do.
Stateside players may also be taking a cold view of Greece’s finances, even allowing for the rescue package. Greece is carrying too much debt and running shortfalls it can’t afford. The government has promised to reduce its deficit to 8.7 percent of GDP this year. Hitting that target would be a start. Restoring trust in its numbers would be another step in the right direction. But both will take time.
Of course, the air is heavy with political posturing, too. Some Greek officials might not mind if it appears the country is struggling to raise debt commercially — that might accelerate or increase the help from Europe and the IMF. And getting more details of the bailout would probably reduce the cost of borrowing. After all, two-year Greek euro-denominated bond spreads narrowed about 0.5 percentage points on Thursday thanks to optimism about the aid package.
Yet while greater clarity might make U.S. investors somewhat more receptive to a Greek offering, it won’t solve the country’s underlying problems. Overcoming those will be another marathon Greece needs to win.