Greek bonds relieve crisis

City A.M. Reporter
GREECE regained a degree of market confidence yesterday as a hefty premium on the first Greek bond issue of the year led to strong demand, providing relief from a deep economic crisis that has battered its markets for weeks.

Demand for the bond reached more than three times the initial offered size, a welcome boost since the worst Greek economic crisis in decades led to questions about its ability to raise financing and dented the euro.

“There is absolutely no doubt, this new bond is tremendously cheap, and I suspect it is generating selling activity as people scrabble to get involved,” said Peter Chatwell, an interest rate strategist at Calyon in London.

Chatwell said that if Greece is able to issue more of the bond than initially expected “it will take a lot of funding pressure off the Greek government”.

The new Socialist government, which inherited a massive budget deficit of 12.7 per cent of GDP in 2009, is rushing to cut spending in a bid to repair the country’s public finances.

However, in a first test of Prime Minister George Papandreou’s mettle to face social opposition, hundreds of farmers protested in Athens yesterday after blocking roads and border crossings to fellow EU member Bulgaria in the past nine days.

The farmers want higher prices and subsidies for their produce. “They are drinking our blood, farmers fight back!” the farmers chanted as they marched in central Athens.

Greece’s problems have added uncertainty for the euro currency in recent weeks as it has turned the spotlight on the fiscal challenges of other weak euro members such as Portugal, Spain and Ireland.

Sentiment in Greek markets was buoyed after demand for its bond reached €16bn (£14bn), above the initial offered issue size of up to €5bn.

Bank sources said the price of the bond was likely to rise on the strong demand, from the initial 375-basis-point level over mid-swaps that was indicated.

Greece has a financing requirement of about €53bn this year.