By Tasos Dasopoulos
The periods of calm, between the storm sweeping the European economy, will be sought by the Ministry of Finance in order to advance the 12 billion euro loan program that it has announced for this year from the end of 2021.
However, the road until September has two increases in the basic interest rates of the euro and a mechanism that will limit the increase in the spreads of the countries of the European south, mainly Greece, Italy, but also Spain and Portugal, which have and higher debt ratios.
So far, even the announcement of the new mechanism has worked positively. The yield on the Greek 10-year bond fell significantly more than 1% in about 15 days. Prior to the announcement of plans for the facility in mid-June, the 10-year yield reached 4.7%, only to gradually retreat to 3.5% last Friday.
This mechanism is expected to be announced on the 21st of the month together with the first increase in the interest rates of the euro by the European Central Bank. Depending on the limits and conditions that will be set by the Central Bank, this new “tool” will be tested in practice by the markets, both before and after its implementation. Therefore, the bonds of the European South and especially the Greek bonds, which do not yet have an investment grade, and the Italian bonds (given that the neighboring country has great financing needs in the next period) should expect strong pressure from the markets.
With all this data the plans for borrowing cannot be given, but will change every day, depending on the circumstances. The context will be that there will be no bond issues in which the investors who will be placed will lose, in a few days, part of their money. This is given that Greece is not yet borrowing to meet immediate needs (this can be done through the 39.5 billion euro reserves) but to complete its bond market, which collapsed with the 8-year financial crisis and the forced exit of the country from the markets.
So far, out of the 12 billion euros of the lending program announced by the PSI, 5 billion euros have been borrowed from regular issues, while at the same time the Organization has also proceeded with a series of management actions that enhance the liquidity of older PSI securities . It is not excluded that we will see such management moves in the next period, depending on the moods of the investors.
However, competent sources of the Ministry of Finance consider it difficult to see any syndicated issue in the near future. As they explain, we will need to know the markets’ reaction to the ECB’s second interest rate hike – which may ultimately be more than 50 basis points – before decisions are made.
In fact, after the latest developments in the market and interest rates, the same sources are now putting a question mark on the possibility of issuing a “green” bond, as was announced at the beginning of the year. In addition to the volatility in the markets, the question mark also concerns the feasibility of such a bond, given that in a short time REPowerEU will also have to “run”, which will be financed mainly with low-interest loans from the Recovery Fund and will serve the same purpose, i.e. to finance green investments.