Greek government bonds gave a cautious thumbs-up to a treasury bill sale on Tuesday which showed Athens had to pay very high yields to entice buyers, keeping alive worries about Greece's funding costs.
The yields of 4.85 percent and 4.55 percent for one-year and 6-month bills respectively allowed Greece to raise 1.56 billion euros, above the target of 1.2 billion euros.
This compared with Belgium, which sold 2.005 billion euros of one-year T-bills at an average yield of 0.677 percent.
The Greek auction was the first test of market appetite for the country's paper after euro zone members agreed on Sunday to provide debt-laden Greece with a 30 billion euro ($40 billion) standby aid package.
Analysts said the auction removed immediate funding fears. "It's been pretty successful, heavily oversubscribed, so it's likely to ease markets worries of any imminent buyer strike in Greece," said Ben May, European economist at Capital Economics. However, May said the sale had not changed Greece's fundamental position. "It does not really change the underlying position that Greece has very tough times ahead, it's going through a deep recession and that's going to lead the debt to GDP ratio to surge higher."
The Greek 10-year bond yield <GR10YT=TWEB> drifted to a session low of around 6.72 percent from 6.79 percent at the settlement close on Monday, tightening the spread over benchmark German Bunds by 7 bps on the day to 354 bps. On Monday, the spread crunched in by some 50 basis points to around 361 bps at the settlement close in reaction to the 30 billion euros European aid package. "The market is taking a bit of a pause for breath, assessing the impact of the EU funding package for Greece," said Nick Stamenkovic, strategist at RIA in Edinburgh. The cost of protecting Greek debt from default eased to 357,800 euros per 10 million euros of exposure versus 365,600 euros at the New York close on Monday, having posted its biggest one-day fall of 60,700 euros on Monday, CMA DataVision said. This month, Greece has to roll over 3.85 billion euros of maturing bills and refinance 8.2 billion euros of a maturing five-year bond. It also has a planned dollar bond issue in coming weeks.
FURTHER CONVINCING
Analysts had said a successful T-bill auction should pave the way for Greece to issue bonds, although some investors needed further convincing. PIMCO, which operates the world's largest bond fund, said on Monday it would not buy new Greek debt because it believes the rescue package fails to tackle the country's long-term solvency challenges.
Elsewhere in the primary market, the Netherlands sold 2.85 billion euros of 10-year bonds, below the upper target of 3.5 billion euros.
This week's scheduled debt sales in the euro zone will amount to roughly 30 billion euros, offset by just 5 billion euros of coupon payments and debt redemptions. [ID:nLDE6380B3]
The euro zone's benchmark German Bunds were little changed with the June futures contract <FGBLc1> just 7 ticks higher at 122.74 at 1111 GMT.
Cash yields also barely budged, with the two-year Schatz yield <EU2YT=RR> at 1.017 percent and the 10-year <EU10YT=RR> at 3.178 percent.
