Greek bond sale buys time for the EU

GREECE was forced to accept a crippling level of interest on its issue of a €5bn (£4.5bn) bond yesterday, ensuring that it was massively oversubscribed.

Just 24 hours after the struggling country announced new austerity measures, national debt management boss Petros Christodoulou said the gilt sale was “going very well, beyond expectations”.

The news sent FTSE’s benchmark European index 0.8 per cent higher to 1,035.56, its highest level in more than a month. The cost of insuring against a default by Athens fell to 304.8 basis points according to CMA DataVision, its cheapest level since mid-January.

Athens’ order book – being run by banks including Barclays Capital, HSBC and Nomura – rose to €14bn. But Greece will have pay a stinging interest rate of 6.4 per cent, about two percentage points ahead of the rate paid by fellow eurozone weakling Portugal.

Gary Jenkins, head of fixed income research at Evolution, described the issue as “one very small step down a long road”.

He added: “The fact they have got it away without any real commitment or support from the European Union is positive. But it’s far too early to say Greece has solved anything – this one’s going to run and run.”

The amount raised by Athens through this week’s placing pales in comparison with the debt mountain it will need to refinance in the spring. Around €22bn of bonds come up for servicing in April and May alone, with €30bn in new borrowings needed later in the year.

Prime Minister George Papandreou will meet German chancellor Angela Merkel today to discuss the terms of the?EU’s support for Greece. Ratings agency Moody’s has threatened to downgrade the country’s sovereign status unless Athens successfully cuts its deficit by an extra €4.8bn.

The euro reversed early losses against the dollar yesterday evening, rising 0.2 per cent to $1.3555. The boost was partly driven by the?European Central Bank’s announcement it would return to auctioning three-month money to the highest bidder, a mark of its confidence in money market conditions.

The ECB balanced the move by extending its policy of lending unlimited funds at flat rates until October. President Jean-Claude Trichet said the steps were decided on the basis of “overwhelming consensus” rather than unilateral action and would help markets stabilise.