Greek sovereign bonds suffered a sharp sell-off on Tuesday as investor concerns over the country's financial health flared up again. The price of seven-year bonds issued only on Monday tumbled as a new issue of 12-year paper struggled to find buyers."Greece still has big problems," said a senior banker. "The Greek bond syndication was very disappointing. Investors still do not have faith in Greece and are only prepared to buy the bonds for higher yields."
In spite of mooted support from the European Union and the International Monetary Fund, investors remain concerned that Germany could refuse to provide financial aid if the Greeks fail to meet their deficit reduction targets later in the year. Greece must raise €35bn ($47bn) of debt this year to avoid a bail-out. It has sold €18bn so far.
Yields on Monday's €5bn syndicated bond rose more than a quarter of a percentage point to 6.30 per cent, a big sell-off for a new issue. Yields have an inverse relation with prices. The bond was trading 3.5 percentage points over German Bunds which is close to a record premium for Greek bonds.
Greece's unexpected sale of 12-year bonds -- a re-opening of an earlier issue due to mature in 2022 - raised only €390m, less than the sale's €1bn upper limit. Debt managers in Athens said a yield ceiling of 6 per cent was set in the auction of the 12-year bond.
Investors said market sentiment had been hurt by the fact the seven-year bond attracted a much smaller amount of orders than the country's two other new bonds this year.
Sentiment was also hit as foreign funds appeared to be less keen on buying Greek bonds than previously. International investors made up 57 per cent of the seven-year deal compared with 61 per cent and 77 per cent for the previous five- and 10-year syndications which were priced in January and March.
Greek traders and analysts shrugged off the new bond's weak performance, pointing out that trading was thin ahead of the Easter break.
Platon Monokroussos, senior economist at EFG Eurobank, said, "The seven-year bond was not a tremendous success but we still think there's still a high probability that spreads will gradually de-escalate."
Greek analysts are optimistic that first-quarter budget figures, due to be released next month will show the government is on track to meet its target of cutting the deficit by four percentage points of gross domestic product this year.
Petros Christodoulou, head of the Public Debt Management Agency, said,"Having pre-funded the April borrowing requirement, we have a bit of time to wait for positive news on the stability measures to trickle through."