The government of Greece got some good news today for a change. The country’s first bond sale in more than four years was completed today, and demand for the issuance was strong. The three billion ($4.14 billion) euro five-year bond offering will pay investors just under 4.9% interest. The yield is more than half a point less than the initial suggestions that the bond would yield 5.25% to 5.5%. The lower pricing is due to the strong interest in the offering.
Greece: Bond issuance is turning point
According to Achilles Risvas, managing partner at Dromeus Capital Management in Switzerland, attitudes about Greece have changed. “[Greece is being] viewed differently. The Greek bond issuance is a turning point in the sovereign bond crisis,” he said. “The European periphery obviously still presents highly attractive yields. The recent rally in bonds has pushed yields to record lows.”
Changing capital markets
Greece’s ability to sell bonds at a relatively low rate reflects a shift in capital markets as much as it dies an improvement in the Greek economy. since Greece defaulted on €200 billion of debt back in 2012, leading to large losses for private investors. Most of the replacement long-term bonds it gave investors in its restructuring had yields approaching 20%. The debacle left the country effectively unable to tap the sovereign debt markets for the last two years and completely dependent on EU bailout funds.
Greek economy off life support, but still very weak
It should be noted that while Greece has certainly made great strides in terms of its economy, the country is still in dire straits by almost all economic metrics. The truth is that Greece is only remaining afloat because of the continuing large infusions of cash from other countries. Keep in mind that the country’s debt-to-gross domestic product is +175% and almost a quarter of the population is unemployed (with even higher unemployment rates for those under age 25). Chronic unemployment, especially of youth, creates a host of social, cultural, and economic problems that need both a lot of time and money to fully heal.