Greece re-enters bond market after three years

Greece has returned to the bond market for the first time in three years after issuing its first five-year euro-denominated bond at a yield of around 4.75%.

Greece re-enters bond market after three years

The move marks a significant milestone for the beleaguered eurozone nation, but bond managers are wary of investing below 5%, with one saying these issues are “not for the faint hearted”.

In a note, Mark Holman, chief executive at TwentyFour Asset Management, said the lead managers and Greek Treasury officials should be applauded for taking the opportunity to tap the markets successfully, as being able to fund independently of external aid is an absolute priority for recovering nations.

However, he is cautious given previous bond issues dating from 2014, before Greece came out of the market.

He explained: “The old five-year benchmark, which now has just two years before its expected maturity date, has seen an impressive performance this year, rallying to a recent high of just over 102, which equates to a yield of around 3.5%.

“However, if we wind the clock back to February this year, the bond was trading with a price close to 90 which equated to a yield of over 10%. A look at the history of the 2014 issue tells us that it has barely spent much time trading over the new issue price, and back in July 2015 it touched a low price of 40.

“It is worth a reminder that investing in Greek bonds is not for the faint hearted.”

The firm added that back in 2014, it not did see a worthwhile reward for the risk of owning Greek sovereigns offering below 5% and it maintains this view.

“While in the short term the conditions for owning Greek bonds may be reasonably stable, we cannot get away from the fact that they are entirely dependent on external assistance as the standalone credit metrics of the sovereign are just not investable from a fixed income perspective.

“The very nature of the assistance means that from time to time there will be contentious discussions between the providers of the aid (the EU, ECB and the IMF) that will deliberate on debt relief and haircuts; words which are not consistent with stable fixed income investing.”

Nicholas Wall, manager of the Old Mutual Global Strategic Bond Fund, said changes in the European political landscape, together with recent strong economic data, mean the bond should perform well.

He added: “When deciding whether to invest in Greece, or any other European country that has found itself in difficulty amid the debt crisis, investors are ultimately making a call on European politics. Arguably, the market priced in too much European political risk premia at the start of the year.

“Today, European solidarity appears higher than it has been at any time since the Brexit vote – indeed, to some degree, Brexit has united European politicians. This is helped enormously by the positive-growth environment seen in most European countries. Political discontent tends to fade as unemployment drops and wages improve.”

 

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