Greeks bearing bonds

April 10, 2014

Greece will sell its first bond in four years.

We know it will aim to raise up to 2.5 billion euros of five-year paper via syndication and wants to pay less than 5.3 percent – remarkable since only two years ago it was tipped to crash out of the euro zone and yields on 10-year debt peaked above 40 percent on the secondary market. They dropped below six percent for the first time since 2010 on Wednesday.

Athens has no pressing funding needs but wants to test the waters as part of its strategy to cover all its financing from the market by 2016. It still has a mountain to climb and may well need more debt relief from its EU partners to corral a national debt that is not falling much from 175 percent of GDP. 

But for all that, it’s a propitious time to borrow. Peripheral euro zone bond yields have tumbled this year, benefiting from wobbles in emerging markets, and now European Central Bank consideration of printing money has given bond prices a further lift.

There will be no shortage of demand with more than 11 billion euros of interest from investors logged by the close of play yesterday. As a result, the pricing could even drop below 5 percent. Germany’s Angela Merkel will visit Athens on Friday.

Already out of its bailout, Ireland will hold its second bond auction of the year, aiming to sell 1 billion euros of 10-year debt. It too is under no funding pressure.

G7 finance ministers will meet in Washington later to discuss Ukraine after pro-Russian separatists in the east of the country called on President Vladimir Putin for help as the government in Kiev warned it could use force to restore order. Washington has accused Russian agents and special forces of stirring up separatist unrest and said Moscow could be trying to prepare for military action as it had in Crimea.

In Washington, the main focus will be on an IMF-led bailout package for Ukraine and whether the stringent conditions which the Fund would normally impose as part of such an agreement might be relaxed somewhat as the West tries to counter what it says is Russian interference.

Germany’s foreign minister will hold talks with his counterparts from Moldova and Georgia, former Soviet republics that are now eyeing closer ties with the EU. Russian Deputy Prime Minister Igor Shuvalov and Johannes Teyssen, CEO of utility E.ON speak at a conference in Berlin. Russian gas producer Gazprom says Ukraine owes it $2.2 billion but Putin told the state producer on Wednesday to hold off on demanding Ukraine pay up front for natural gas supplies.

A clutch of ECB policymakers are also in Washington and will speak during the day ahead of G20 and IMF meetings.

The Bank of England delivers its monthly verdict and will be firmly on hold although real economy data are getting stronger and stronger and Governor Mark Carney has said interest rates could rise from 0.5 percent before UK elections in May 2015, an unwelcome message for the government. British house prices picked up speed in March and sales reached a six-year high, the Royal Institution of Chartered Surveyors said, suggesting the market is still firmly on the rise. House prices rose in every area of Britain and by the most in London and the South East.

BoE officials have played down suggestions that the housing market is overheating but have said they are vigilant to the risk. The RICS said there was an urgent need for more housebuilding to even out the supply-demand imbalance.

Germany’s leading economic institutes publish their twice-yearly economic forecasts which inform the government’s own predictions. Critical of the economic policies of Merkel’s new coalition, the institutes are expected to talk about plans for a minimum wage and pension reform. Separately, the economy ministry publishes its monthly report.

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