SOVEREIGN FINANCING. Greece’s debt servicing needs are low in the coming years. Since the onset of the crisis, Greece has successfully issued both treasury bills and long-term bonds with seven-year maturity, indicating sustained access to short and medium/long-term market financing. Greece’s debt servicing costs in 2020 and 2021 are low, and mostly reflect the refinancing of short-term bonds. Greece has only about €3 billion of long-term bonds that mature in 2020 and of around €5.1 billion of interest expenditure to cover. Debt servicing cost will remain modest in 2021 too, with only about €10 billion of medium and long-term loan repayment and interest expenditure. The volatility of the yield spreads has increased. Greece enjoyed a long and almost uninterrupted decline of the spreads on its bond yields until mid-February 2020, when they reached their lowest levels since 2009. As the signs of the coming crisis began to appear, spreads have started to increase with some high volatility until 18 March with spreads reaching a high of around 400 basis points on a 10-year maturity, when the European Central Bank announced its Pandemic Emergency Purchase Programme. Due to a waiver of the eligibility requirements, the Greek government bonds have become eligible for purchases under this program. After a decrease in the days after the start of the programme of around 200 basis points, the Greek yield spreads over the German bonds have increased again, and have settled close to 270 basis points by the end of April for the ten year tenure, which is around 130 basis points higher than the February lows but still around 130 basis points points lower than the highest value in March. The considerable cash reserves provide a cushion to absorb liquidity shocks. The cash buffers of the general government reached around €34 billion at the end of March 2020. This includes €15.7 billion in the cash buffer account (built also through disbursements under the European Stability Mechanism programme and dedicated to debt service – Greece may use this amount for other purposes as well, following an approval of the European Stability Mechanism’s governing bodies. ), €10 billion of state deposits in the Bank of Greece and commercial banks, €1.9 billion of general government entities’ deposits in the Bank of Greece (20). Given the limited debt service needs discussed above, the cash buffer is available to absorb liquidity shocks in the coming months. Greece signalled that it plans to keep its presence in th...
SOVEREIGN FINANCING. Greece strengthened its presence on the sovereign bond market, by issuing new bonds in January 2020. At the end of November 2019, Greece carried out the partial early repayment of its International Monetary Fund loan as was foreseen in the previous report. In January 2020, the Public Debt Management Agency (PDMA) conducted a liquidity management exercise, by entering into a bond swap agreement with the National Bank of Greece (NBG), a commercial bank. In this operation, the Public Debt Management Agency swapped three bonds held by the National Bank of Greece which would have matured between 2023 and 2026, with a new government bond that has a 30-year maturity. Both the market value and the nominal amounts of the exchanged bonds were the same, therefore this exchange had no direct impact on the level of public debt, but reduced the refinancing risks of the Greek state. Following its funding strategy published in December 2019, and a few days after the most recent upgrade (see next paragraph), the Public Debt Management Agency issued €2.5 billion of a new 15-year sovereign bond at the end of January 2020. Amidst strong investor interest, the final order book was close to €19 billion, and the achieved yield of 1.9% came below the expectations. Some 84% of the auctioned bond was sold to foreign investors, mainly real money investors. It was the first time since the crisis that Greece issued a bond with such a long maturity on an open auction, and also the first time it issued a bond that matures after the end of the current deferral period of the European Financial Stability Facility loans, i.e. after 2032. This indicates that the investors see limited roll-over risk also on this horizon. Based on the funding strategy, further bond issuances can be expected this year, which might finance further early repayments of official and private sector debts. Sovereign yield spreads have decreased, and Greece’s rating is now two to four notches below investment grade. Since the last report, Greece’s sovereign yield spreads have further decreased, in particular in the first half of February, reaching levels around 140 basis points over the German government bonds on a 10-year maturity. On 24 January 2020, Fitch Ratings upgraded Greece’s credit rating by one notch to BB with a positive outlook. The upgrade was underpinned by improving debt sustainability, sustained GDP growth, good fiscal track record and stable political environment. The positive outlook reflects that Fi...
