Greece reaps the benefit of its CDS market
Great news from Greece: its brand-new €5 billion, 10-year bond issue was three times oversubscribed and is already rising in the secondary market, after pricing at a spread of 300bp over the mid-swap rate. Greece is paying a 6.4% yield on the issue, which is pretty affordable in the grand scheme of things, given how much trouble it’s in right now. And now that this bond has gone so well, there will surely be appetite in the market for more where that came from.
One of the big problems with debt markets is that, especially during times of stress, they become very illiquid. Many bankers have spent many hours trying to explain to emerging-market finance ministers that just because their bonds are trading at a certain level in the secondary market, that doesn’t mean they can issue new bonds at that level, or even at all.
But it turns out that a liquid CDS market is a great way of enabling countries to access the primary markets even when the secondary markets are full of uncertainty and turmoil. Which is yet another reason to laud the notorious buyers of naked CDS protection, rather than demonizing them.