Greece’s return to bond markets could be an important error, analyst says

14 July 2017
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Greece is preparing to return to the bond markets but an early move could be costly, an analyst told CNBC on Thursday.

Media reports have suggested that Athens could be preparing a bond market comeback as early as next week. The country, which is under financial supervision until next year, needs to make a smooth transition back into the financial markets to show the current bailout program has been a success.

But the timing of its comeback is essential. “Going back to the markets early is a big mistake. Greece will have to pay a risk premium of several hundreds of basis points for medium term funding. All the private funding that Greece might find now will mature well before the European loans,” Daniel Gros, director of the Centre for European Policy Studies, told CNBC.

Issuing new bonds is an important step for Greece to show its able to stand on its own feet. The last time Athens raised money in the bond market was in 2014. At the time, the government claimed that the sale marked the beginning of the end of tough austerity measures following a first bailout program in 2010. However, a few months down the line Greece asked for another bailout.

Greek bankers are in contact with the debt agency

“Coming back to the market is important, but I would say it is an important error. There is always a risk that things do not work out as planned and that a fourth bail-out will be needed,” Gros told CNBC.

A source familiar with the situation, who didn’t want to be named because of the sensitivity of the issue, told CNBC that the timing of Greece’s return to the bond markets is not yet know.

“We don’t know for sure if Greece will try to tap the markets next week or wait until the fall,” the source said. Greek government officials have signaled that they aren’t ready to tap the markets next week, but Greek bankers seem to be in contact with the Greek debt issuance agency, the source said.

On Wednesday, the European Commission said Greece’s fiscal position has improved and it had decided to lift the risk of disciplinary procedures against Athens over its excessive deficit.

Pierre Moscovici, commissioner for economic affairs, told reporters that the chances of seeing Greece returning to the market again were becoming “more credible”.

Bill Blain, head of capital markets at MINT Partners, said in note Thursday: “Investment Bankers are swarming all over Athens, trying to persuade the Greek Treasury to award them the mandate for Greece’s return to the bond market…We’re expecting a 5-year deal with a coupon around 4.5 percent next week – after the Bastille (the French bank holiday) slowdown.

“No matter what you think or I say about Greece, I confidently expect the new deal will be a massive blowout success. Forget whatever tattle you’ve heard about domestic government instability, or bail-out number 4 in the wings, the new deal will have that great big tasty 4 handle plus coupon you just can’t resist,” he added.

Greece is set to grow 2.1 percent this year, above the euro zone average, according to commission forecasts. However, unemployment levels are still the highest in the EU and it has yet to conclude other economic reforms until its creditors decide to grant some debt relief in 2018.

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