What does the drop in Greek bonds mean for the economy?

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By Tasos Dasopoulos

Abstinence from the issuing activity of new bonds is imposed by the explosive atmosphere created by the expectation of the second increase in the interest rates of the euro prepared by the ECB for the meeting next Thursday.

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Statements on the need for a decisive stance by the ECB to contain galloping inflation by board members, most recently Finland’s long-time central banker Olli Rehn, have raised expectations for a second big hike. interest rates.

Estimates want the increase that was initially expected at 0.5% not to fall short of 0.75%, while under certain conditions it can even reach 1%. Faced with such an eventuality, markets rushed to take a position, selling European bonds, pushing up yields.

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Infogram

The most worrying thing for Greece is that in addition to the rise in yields, nervousness has also increased in the Eurozone’s benchmark bond, the German 10-year, whose yield has reached 1.5% and fluctuates daily, even by 10 points basis. Such a thing, even in an attempt to borrow a very limited amount (e.g. 100 – 150 million euros) from the markets, is dangerous not so much for the Greek public (the increase in the average cost of borrowing would be negligible) as for the investors in Greek bonds. This is because, in a continuous downward trend of the Bund, the Greek bonds would be repriced by the markets downwards. The result would be that investors would be left with securities that lost some of their value a few days after they were purchased.

Abstinence of 4-5 weeks

In the plans of the financial staff, there are several such small releases to deal mainly with the lack of Greek securities from the markets. However, competent sources estimate that the environment will be “unsuitable” for the next four to five weeks, until the markets “digest” the new increase in euro interest rates and the market finds a relative stability. But after this period, the same sources did not even rule out a normal version, if a “clearing” occurs from market movements. This, despite the fact that Greek bond yields may even reach 5% in the next period. But even if this is not done, there is nothing urgent to be covered by borrowing from the markets, until the end of the year. The cash reserves currently reach 39 billion euros and can cover the needs, at least until the end of 2024.

However, due to the good course of the economy, the time is expected to close with assets that will reach 35 billion euros, instead of the 30 billion euros estimated at the beginning of the year. On the other hand, the hopes of neighboring Italy, which cannot afford to wait, turn to the expected intervention of the ECB with the new tool, with which it promised to smooth out the fragmentation of the bond yields of the countries of the European South.

Next year the “green” bond

Apart from small interim issuances, the Ministry of Finance looks set to postpone to 2023 the issuance of the first Greek “green” bond, which was planned for the second half of 2022. Demand for such bonds is extremely low and will remain so the situation in the coming months as well. Such a release would be done more for symbolic than for substantive reasons. Greece wants to participate in a new market that is now taking shape in Europe, looking forward to benefits for the future. At the moment, “green” projects can be financed both by the Recovery Fund and by the more special program REpowerEU. For all these reasons it was decided that this particular version, it is better to do in smoother conditions next year.

Source: Capital

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