Greece plans summer bond issue after April success

Greece is preparing to issue a small-sized, medium-term bond in the coming weeks to follow on the heels of its successful return to debt markets this year after a four-year exile, a senior finance ministry official told Reuters.

Bailed out twice by the European Union and International Monetary Fund and reliant on aid to keep afloat, Greece has enjoyed an abrupt turnaround in investor sentiment as it steadies its finances and targets a return to economic growth this year.

Athens is now eyeing a bond issue before August with a likely maturity of seven years to raise 2-3 billion euros, the official said, to take advantage of bond yields hovering around four-and-a-half year lows.

The sale would follow Greece΄s 3 billion euro sale of five-year bonds in April that marked the clearest sign yet that the country was emerging from a painful debt crisis and could exit its bailout soon.

“Conditions in the markets are good for a new bond issue in the summer,” the official said on condition of anonymity, cautioning that the government had yet to finalize details.

“We are talking about a small-sized issue of around 2 to 3 billion euros with the primary aim of filling the yield curve.”

Athens is trying to correct a gap on medium-term issues in its yield curve. It issued 3-month and 6-month Treasury bills through the debt crisis and the five-year bond in April but its debt maturities then jump to between 10 and 30 years.

“There is strong interest for both a seven-year and a three-year bond,” the official said. “A seven-year bond is more likely (in the summer). Later on, we could issue a three-year bond. For maturities of 1.5 to 2 years it could be done with T-bills.”

Despite the success of its last bond sale, Greece does not expect a quick switch to covering all its funding needs through bond issues, though it does want to start whittling down the so-called funding gap – financial needs uncovered by bailout aid or government revenues – projected to open up in 2015.

The IMF estimates Greece faces a funding gap of 12.6 billion starting in May 2015, though Athens believes any gap can be covered through measures like new bond issues and leftover bank bailout funds.

Former Finance Minister Yannis Stournaras told Reuters in April the country will only be able to fund itself unaided from 2016 and that forays in the bond market this year will be part of a “trial and error” process.

After nearly crashing out of the euro in 2012, Greece΄s fortunes have revived sharply in recent months. The country΄s six-year recession is predicted to end this year, and it posted a budget surplus before interest payments last year, making it eligible for further debt relief from its partners.