Greek 10-year bond sends borrowing costs to over 5%

Greece’s 10-year borrowing costs currently exceeded 5% (5.003%) , from 2.9% just at the beginning of August, marking a 72.5% increase in the same period, while multi-year highs were also recorded in the Eurozone, with German bond yields in positive territory for the first time since June 2015 on expectations of another rate hike and concerns about more debt issuance to finance increased government spending.

European Central Bank officials do not appear willing to fetter the bond market. Meanwhile, the yield on 10-year British debt rose 4.5 basis points after jumping 119 basis points in just four sessions. This is the sharpest move since at least 1979, in response to new finance minister Kwasi Kwarteng’s borrowing plans.

The yield on Germany’s benchmark bond fell 1 basis point to 2.24%, after a near 11-year high of 2.31%. The yield on the 10-year Italian bond rose by 1 bp. to 4.43%, after reaching a new 9+ year high of 4.85%, with the spread between Italian and German at 252 bp. Investors focused on Italy’s budget after the victory of Giorgia Meloni’s right wing coalition in Sunday’s election, which inherits one of the eurozone’s biggest debts amid a period of rising interest rates and slowing growth. Mario Draghi’s outgoing government will announce the country’s new growth and fiscal estimates this week. News that the Nord Stream natural gas pipeline from Russia to Europe has been damaged sparked a rise in natural gas prices, which analysts see as an indicator of future inflation.

How and under what conditions will the Greek government re-enter markets

Despite the increase in borrowing costs and despite the “cash cushion” of 38.7 billion euros today, the Public Debt Management Agency (P.D.M.A.) is expected, once the volatility is restrained, to continue its issuing activity with the possible re-issuance of a 10-year bond, in the context of its stable presence in the markets.

Since the beginning of the year, the Greek State has drawn 7 billion euros, while what should be understood is that the moves made by the PDMA could take place with a controlled risk due to the risk hedging movements that have been made in previous years, as the bilateral loans of the 1st memorandum of 53 billion euros have been hedged through swaps, with the result that for every 1% increase in borrowing costs, Greece would reap (if subscribed) a profit of 4.5 billion euros.

Thus, if e.g. in the next exit to the markets the country borrows through the reissuance e.g. 10-year bond due to the relatively expensive situation, a very small part of the above swaps could be closed at the same time, with the result that the final cost of borrowing for the State would be much lower.

PDMA raised 812.5 million euros from 6 month bonds

It should be noted that PDMA raised 812.5 million euros from the issuance of six-month interest-bearing Treasury bills on Wednesday at a significantly increased cost, according to its announcement. The yield stood at 1.95%, up 90 basis points from a 1.05% yield in the previous August issue. The raised amount includes non-competitive offers of €187.5 million. The coverage ratio stood at 2.27 from 1.76 in the previous auction. Settlement date is September 30th.