Greek bonds rally to records on prospect of market return

Greek bonds have rallied to post-crisis highs this week as the country eyes the prospect of a return to the debt markets for the first time in three years.

Athens’ left-wing Syriza government is looking to test investor appetite for Greek debt for the first time since 2014 as its bailout troubles have receded in the last month. Greece successfully received a €7.7bn tranche of rescue cash from its creditors earlier this month, ensuring it will avoid defaulting on its lenders in July.

The economy is also showing tentative signs of growth after nearly a decade in depression. Economic output grew by 0.4 per cent in the three months to March – still below the eurozone average – but helping the country avoid another dip into recession.

That positivity helped Greece’s current 10-year bond yield to hit an all-time low of 5.1 per cent yesterday (yields fall when a bond’s price rises).

The country’s debt management office is expected to sell a five-year bond in the next week, according to bankers with knowledge of the plans. Greece has not tapped the debt markets since a lull in its bailout problems in 2014.

Since then, the country has been forced into another EU rescue programme and was bought to the brink of a eurozone exit in the summer of 2015.

A successful return to the bond markets will be crucial in assessing whether Greece can manage a “clean” break from its €86bn bailout due to expire in August 2018.

Peter Schaffrik at RBC Capital Markets notes the yield on Greece’s 10-year debt is below where it stood the last time Athens issued a bond in 2014, “making the current market backdrop appear favourable”.

Despite the recent spate of good news, EU and IMF creditors remain divided on the country’s debt relief needs. The Washington-based fund has pushed Brussels to provide more generous restructuring on Greece’s debt pile – which currently stands at 180 per cent of GDP – as the best way to ensure the country’s long-term solvency.

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