January 18, 2019 / 1:24 PM / 6 months ago

UPDATE 1-Greece plans 5-year bond but only after Macedonia issue resolved-sources

ATHENS/LONDON, Jan 18 (Reuters) - Greece plans to return to bond markets with a five-year syndicated issue once a parliamentary vote on a long-running dispute with neighbouring Macedonia is out of the way, two sources told Reuters on Friday.

Greece was expected last year to bring a 10-year euro-denominated transaction but was forced to postpone the deal due to volatility stemming from Italy’s budget dispute. Two sources, one from the debt agency and one from a primary dealer, said Athens would opt for a shorter-tenor bond.

This will be the first bond from Athens since last February.

“We plan to move with a 5-year issue but we want the vote on the Macedonia agreement out of the way as well,” said the debt agency source.

Greek Prime Minister Alexis Tsipras won a confidence motion in his government on Wednesday, clearing a major hurdle for Greece’s approval of an accord to end a dispute over Macedonia’s name, and averting the prospect of a snap election.

This sparked a strong rally in Greek government bonds.

But the government has not yet announced a date for the parliamentary vote on the Macedonia deal.

“You can move to tap markets once there is political calmness and of course no upheaval in markets,” the official said.

EU Economics Commissioner Pierre Moscovici on Wednesday urged Greece to regain full access to the debt markets and the issuer has said that it wants to return to the market as a regular borrower.

Market sources said Greece had been planning a 10-year bond in the summer of 2018, but volatility in Italian debt spilled over the Greek government bond market, making the deal unfeasible.

The country only emerged in August from its third international bailout since 2010 and plans to raise 5-7 billion euros from the bond market this year.

“Greece are in a position where they don’t need the funding so they can pick and choose which part of the curve suits them best. Since they are coming to market after long break, it makes sense to start with a five-year and then build from there,” said a banker who works for one of Greece’s primary dealers.

Also, once a new issue premium is factored in, the yield on a new 10-year bond would not look attractive for the debt agency, the banker added.

Greece’s outstanding five-year bond has performed strongly of late, and its yield touched a five-month low of 2.93 percent this week.

Its 10-year bond — a January 2028 note — is yielding 4.2 percent, a level described as uncomfortably high in the past by Greece’s primary dealers.

Investors have bought euro zone government bonds in droves this year so far, and Italy, despite recent troubles, enjoyed notable success with a record-breaking 10 billion euro syndication this week.

This bodes well for Greece.

“Yes we would look at Greece and we think the deal will go well - and you just have to look at the Italy syndication to see why,” said Louis Gargour, chief investment officer at LNG Capital, a London-based hedge fund and a long-term investor in Greece.

“These bonds are the only yield in town without taking emerging market risk, at a time when the ECB is unlikely raise rates anytime in the near future.”

He said they would look for a 8-12 percent new issue premium on a new Greek bond deal because of the Single B credit rating; translating to a new issue premium around the 30 bps mark.

Jack Kelly, investment director, fixed income, at Aberdeen Standard, said that Greece has built up a substantial cash buffer ahead of its re-entry to the market.

“While the Greek reform agenda has largely stalled, it has managed to remain within the deficit target limits in contrast to some other high profile European sovereigns,” he said.

Greece is a sub-investment grade credit rated B3 by Moody’s, B+ by S&P Global and BB- by Fitch. (Reporting by George Georgiopoulos in Athens, Abhinav Ramnarayan and Virginia Furness in London; Editing by Toby Chopra)

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