–But Some See Risks As Greece Seeks To Tap Markets In Next Months
–Some Wonder If EU/IMF Plan Really Helps Solve Greece Funding Problem
–Analysts: Markets Need To See Results On Austerity Effort

LONDON (MNI) – Greek government bond spreads rewidened Wednesday
amid market concerns that the country needed to pay a hefty premium for
its recent 7-year GGB issue but analysts by and large are still
confident that the country does not face a major risk of default.

But analysts still see risks for the country as it seeks to tap the
markets for to fund forthcoming redemption payments due in the next few
months.

The more pessimistic analysts see a real flaw in the EU/IMF rescue
plan and all agree that Greece needs to show results on its efforts to
reduce its deficit and stabilise its economy.

Greece’s latest new benchmark syndicated 7-year issue was
priced Monday for E5.0 billion, at mid-swaps +310 basis points. That
equates to a spread of +334.30 basis points over Jan 2017 Bund issue.
This amounts to a hefty premium for a country which is attempting to
slash its budget deficit.

Most of the widening occurred after reports that the issue had
been alloted mainly to banks, with local investors taking the
lion’s share, according to a press release obtained by Market News
International.

Banks took 42% of the sale, Fund Managers 32%, Insurance & Pension
Funds 18% and central banks/Official Institutions 8%. In terms of
geographical breakdown Greek investors took 43%, UK & Ireland 15%,
France 8%, Scandinavia 6%, Asia 5%, Austria/Germany 5%, Benelux 5%,
Italy 3%, Iberia 3%, Switzerland 2%, and Others 5%.

Confirmation that the final order book closed at E6.25 billion
provided fresh disappointment and was seen as rather lacklustre compared
to the previous 5- and 10-year benchmark issues sold earlier this year.

GGB spreads also widened after Greece only accepted E390 million
for the 5.90% Oct 2022 GGB issue at extraordinary auction conducted
Tuesday, out of the E1.0 billion on offer.

The Greek debt agency at the time said that this extraordinary
“operation [was] to address the technical dislocation of that point on
the GGB curve”, but the lower allocation contradicted that claim.

Further spread widened was also noted after PDMA chief Petros
Christodoulou said Wednesday that its funding needs for May would amount
to E11.6 billion, higher than markets expected given Greece has E8.44
billion worth of redemptions and E1.8 billion deficit financing needs to
fund by the end of May.

Christodoulou also added that Greece will soon do a roadshow in
Asia and the U.S. Soon after that, at the end of April or the very
beginning of May, “we could be in the market with a global bond deal in
dollars”, he said.

The debt chief said that beyond May PDMA needs to do a further E32
billion funding for the year, which equates roughly to the E54.0 billion
target given that E23.44 billion has already been sold so far in 2010.

Orlando Green – strategist at Credit Agricole – believes that it
was the 7-year maturity of the recent GGB issue which had put his
customers off:

“The 7-year sale was a bit of flop, which was more to do with the
maturity on offer. Our clients didn’t like the maturity, which was too
long for them and instead preferred a shorter issue, i.e. 3-year, which
is considered a better fit”.

Green says that this ‘flop’ was the most likely reason for the
extraordinary auction:

“We didn’t expect them to do the extraordinary auction, and this
was probably because they didn’t sell enough in the 7-year sale.”

The new Greek funding difficulties have provoked a new sense of
pessimism among euro zone analysts.

Jacques Cailloux, chief euro area economist at RBS, blames the
markets’ persisting lack of confidence in Greece:

“There is still a lack of confidence from the markets about the
Greek efforts on the consolidation front. The fiscal data for January
and February show that the underlying trend is better, but the market is
not buying into this”.

Nor has the EU’s backstop facility for Greece convinced the
markets, says Cailloux.

“The markets are not convinced with the backstop facility and
especially about coordination issues that remain unanswered”.

Philip Sabuco, economist at BNP Paribas, cites the same factors for
the new widening in spreads. Sabuco says that Greece needs to show some
concrete results to bring spreads down.

“We saw that the precision of an assistance mechanism was not
enough to bring down sufficiently the spread. It is still quite high.
Greek finances are still poor and markets are waiting for the first
signs of improvement since the austerity measures were announced. Thus,
for the moment, spreads will remain wide until initial results are
seen”. MORE

–London Bureau/Frankfurt Bureau; emails:
nshamim@marketnews.com/twailoo@marketnews.com/dthomas@marketnews.com;
Tel: +442078627492

[TOPICS: M$X$$$,MT$$$$,MGX$$$,MFX$$$,MFXBO$,M$$FI$]