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Greek bond attracts strong demand

January 26, 2010 | “MarketWatch"

LONDON (MarketWatch) -- Strong demand for Greece's syndicated offering of five-year government bonds on Wednesday helped calm credit markets Monday, easing worries for now about the ability of Athens to fund its budget deficit.

Investors put in orders for about 25 billion euros worth of bonds, far exceeding Greece's planned issue of 3 billion to 5 billion euros, according to Dow Jones Newswires. In the end, Greek authorities opted to issue 8 billion euros worth of five-year debt at a yield of 6.2%.

The yield premium investors demanded to hold Greek debt shrank Monday. The five-year yield spread over Germany stabilized around 3.56 percentage points after hitting a historic high of 3.65 percentage points on Friday, said Win Thin, senior currency strategist at Brown Brothers Harriman.
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"So the timing of today's auction is fortuitous for Greece, with risk appetite bouncing back from last week's swoon," Thin said.

Greece initially set price guidance for the issue to a yield premium of around 3.75 percentage points over midswaps. That guidance was later tightened to a range of 3.5 to 3.65 percentage points and now stands at 3.50 percentage points over midswaps, Dow Jones Newswires reported. That's still a substantial premium over past issues, analysts said.

Worries about Greece's debt load have contributed to recent weakness in the euro. The Greek government has vowed it will meet all its debt obligations. It has submitted a plan to cut its budget deficit to less than 3% of gross domestic product -- the European Union cap -- by 2012 from more than 12% last year.

The yield premium investors demanded to hold Greek-government paper soared last week on the concerns over the nation's debt position. The spread between 10-year Greek bonds and their German counterpart widened as far as 3.18 percentage points -- a record -- late last week.

The spread was seen around 2.90 percentage points late Monday, analysts said.

Greece's biggest test may come in the April-May period when it must refinance around 20 billion euros of debt out of the total 54 billion in borrowing required for this year, according to analysts at UniCredit.

By William L. Watts, MarketWatch


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