Defensive moves in public debt management

By Tasos Dasopoulos

Today, ODDIH proceeded with limited reissues of a 20-year and a 25-year PSI bond with fixed interest rates of 4% and 4.2%, in order to increase their liquidity, to confirm the presence of Greece in the markets and to give room for maneuver to the current holders of bonds.

Particularly, today the ODDIH reissued the 20-year fixed interest rate bond of 4%, maturing on January 30, 2037, in intangible form, for an amount of EUR 250 million and the 25-year fixed rate bond of 4.20%, maturing on January 30, 2042, for EUR 150 million.

These two issues are followed by a corresponding special auction of a 20-year bond, with a fixed interest rate of 3.90%, expiring on January 30, 2033, in which ODDIH proceeded a week earlier, raising another 500 million euros.

These auctions are held in a closed circle (only the main negotiators of HDAT participate) which will have an upper limit of bids for each title.

The purpose of the reissue is to provide additional liquidity to some of the government securities, which emerged in 2017, after the bond cut (PSI), and after the five-year period of suspension of trading, in order to make them more tradable.

However, apart from the basic debt management, the 900 million euros that the ODDIH will raise from the three issues will further strengthen the public cash at a critical time. At the same time, they will give the message to the markets that Greece is careful but active in the market, even in difficult conditions, such as the ones we are going through. The increase in borrowing costs from reissues will be almost negligible, as 900 million is a very small amount compared to 355 billion in debt.

The decision of YPOIK to turn to PSI bonds, even for small issues, came after the upward climate that prevails for all eurozone bonds, mainly due to the concern for a big slowdown or recession (for the most pessimistic) of the EU, due to of the energy crisis and the uncertainty that fuels trade, the ongoing war in Ukraine.

Losses

Three months after Russia’s invasion of Ukraine, the bond market has plummeted In less than two months, the ECB has announced that it will permanently end government bond markets (with the exception of expiring bonds and being replaced by new ones) and will start the process of raising interest rates

The general uncertainty also has effects on Greek bonds, which have more than tripled their yields in one year. Indicatively, we can mention that the 10-year bond trades with a yield of 3.5 -3.70% from 0.9% a year earlier. , while the five-year almost negative return in the summer of 2021, is currently trading at 2.35%.

The spread of the Greek 10-year with the corresponding German (Bund) has doubled compared to last year, from 130 to 260 bp. This is despite the fact that Germany sees after about four years its 10-year title to have a yield close to 1%, However, the gap with the “European south” has narrowed. For example, the Greek 10-year title has a yield difference of about 60 basis points from the corresponding Italian.

The Ministry of Finance reassures that Greece is charged with a risk premium on its returns due to the amount of its debt and of course the absence of the investment grade. With the recovery of the investment level within the next 12 months, Greece will easily close the gap with Italy and Spain (160 basis points) and Portugal (165 points).