Bond Market Slip To Make Greek Tragedy?

Greece Pays Bond Investors 5 Times Spain Yield Spread (Update1)

March 29 (Bloomberg) -- Greece, the European Union’s most indebted member, offered more than five times the yield premium of comparable Spanish debt to lure investors to its first bond sale since a bailout was agreed to for the nation.

Greece priced the 5 billion euros ($6.7 billion) of seven- year bonds to yield 310 basis points more than the benchmark mid-swap rate, according to a banker involved in the transaction, who declined to be identified before the sale is completed.

The bonds’ 6 percent yield equates to 334 basis points more than seven-year German bunds, Europe’s benchmark government securities. That compares with a yield premium, or spread, of 61 basis points for similar-maturity Spanish debt and 114 basis points on Portugal’s government bonds due 2017, according to composite prices on Bloomberg. Italy’s seven-year bonds yield 45 basis points more than bunds, the prices show.

“Greece’s borrowing costs exceed those of Spain and Portugal as it still needs to convince the market that it can roll over existing debt,” said Michiel De Bruin, who will probably buy the securities for the $28 billion of assets he helps manage as head of euro government bonds at F&C Investments in Amsterdam. “Only then is it likely that borrowing costs will fall.”

Prime Minister George Papandreou’s government must raise about 53 billion euros this year, 15.5 billion euros of it by the end of May. Failure to do so could spark a new round of the fiscal crisis and trigger the use of the aid plan to help Greece finance its budget deficit by standing behind the nation’s debt crafted by EU leaders in Brussels March 25.

Default Swaps

The sale pushed up the cost of default insurance on Greece’s debt. Credit-default swaps on the nation climbed 15.5 basis points to 310.5 basis points, according to CMA DataVision. The price of the swaps soared to as high as 428 basis points on Feb. 4 when it seemed likely Greece’s debt crisis would spread to its southern European neighbours.

“This deal is likely to be first of many to get Greece through its April and May funding needs,” said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London.

The 6 percent yield on Greece’s new notes compares with 6.30 percent on the nation’s 5 billion euros of 10-year benchmark bonds issued March 4. The country’s five-year notes sold on Jan. 26 now yield 5.76 percent, Bloomberg data show.


As an investor, I struggle to see why anyone who is informed would risk their capital on a basket case like Greece for a lousy 6 percent return.  I would convert my dollars into gold or silver any-day over bonds backed by an iffy government.

Spendthrift socialist government's just can't seem to cut spending and say no to unions and big government supporting voters. 

Frugality has not become part of the vocabulary to date.

But the time is coming soon for words and ideas long scorned.  

Perhaps the next two years will convince voters and governments that socialist ideas, big government, and market interference just don't make sense.