The strategy of YPOIK for the next exit in the markets

By Tasos Dasopoulos

The Ministry of Finance is preparing a new exit in the markets, more to confirm the country’s presence in the markets, after an absence of about 3 months (the first issue this year took place in January), and less to increase the amount of the country’s cash.

In this regard, it is considering the issuance of a short-term bond (5 to 7 years) through which it will raise 2.5-3 billion euros, completing about half of the annual loan program of 12 billion euros that was announced at the end of 2021. The choice of a short-term security is made to reduce the cost of public borrowing. This is due to the fact that the ten-year bond trades at a yield of 2.95%, while for example the 5-year bond trades at a yield of 1.85% up to 1.95%.

The move for a new version at this point in time is doubly strategic. First, Greece will have to return to the markets since it has already been absent for about three months. On January 17, 2022, Greece, by issuing a 10-year bond, raised funds of 3 billion euros with an interest rate of 1.834%. Since then, intense instability, following the outbreak of war in Ukraine, has forced Athens to suspend indefinitely the issuance of new debt, mainly to protect investors, who have already been placed in Greek bonds.

The issue that is currently being planned at YPOIK and which will take place sometime after Easter, is expected to achieve an interest rate of over 2%. The Ministry of Finance and the Government have accepted the higher interest rate, but they are waiting to identify a period in which there will be less nervousness in the money markets, so that the new investors of the Greek bonds do not have losses.

The fear of interest rates

With the same careful strategy, YPOIK will approach the public borrowing program for the rest of the year. Another one or two bond issues are expected in the summer. With the total of 4 editions of 2022, YPOIK expects to achieve another double goal. Athens should appear as a regular issuer of bonds even in a negative international situation and on the other hand to supplement with another 2.5 – 3 billion cash, which will support all the financial needs of the budget until the second half of the year.

On the other hand, the rush to raise funds from the markets before the fall has another aspect.

As is well known, the ECB has announced that monetary policy is changing from now on. In this direction, it is expected in the first phase to completely stop the bond purchases (quantitative easing) until the end of the summer. The next step will be for the ECB to open the cycle of rising interest rates in the Eurozone. That period is expected to bring new upheaval in the money markets, with unknown intensity and unknown duration. This will apply more to the countries of the European South, such as Greece, Italy, Spain and Portugal. As a precaution, YPOIK does not want to borrow at such a time.