The yield on Greece’s April 2019 bond — its original ‘comeback’ deal from way back in 2014 — was just over 5.9% on Tuesday afternoon, a fall of around 45bp from last week’s close. That added to gains that it — and other eurozone sovereigns — enjoyed after the first round of the French presidential election on April 23 returned a result that suggested Eurosceptics will be kept out of power in the second largest eurozone economy, for now at least.
But in absolute terms, the secondary yield is still well above the 4.95% level at which the bond was priced in April 2014. In spread terms, it is also far higher above the German curve than its reoffer level of plus 436.1bp. Not only is the spread now more than 200bp higher, it was ominously — for the superstitious — bang on 666bp when GlobalCapital checked on Tuesday afternoon.
One could argue that the Satanic spread would crumble if Greece’s bonds start a heavenly ascent with inclusion on the European Central Bank’s public sector purchase programme buying list.
But let’s not forget, the signs are that Mario Draghi and co are starting to move away from the period of extraordinary easing. The ECB has already cut its monthly purchases by €20bn.
Even if Greece gets its levels down to those of 2014, there will be questions about whether it should bring bonds to investors.
When it sold its comeback deal in April 2014, alongside much praise there was also criticism from some senior voices in the sovereign bond market. The 4.95% yield level was too high compared to where it could borrow from its creditors, said some. Others felt it was merely adding to an already precarious debt-to-GDP ratio for the sake of a symbol.
It is that second problem that must be dealt with before Greece returns. The country’s government hopes that after this week’s negotiations finished, talks can now turn to debt relief measures — the need for which has been blindingly obviously for years.
That should be where Greece trains its focus — debt reduction, not debt addition.