Greece may have to wait at least another five years before it can sell bonds to investors, according to financial institutions that trade debt with European governments.
A new administration in Athens and signs that European Union leaders are willing to loosen Greek austerity measures failed to convince primary dealers that the country will be able to return to the market before its second bailout ends in the next three years.
Three of 20 companies surveyed by Bloomberg News that deal directly with sovereign bond issuers expect it to take at least a decade before Greece issues debt again. Ten say investors would lend money to the country no sooner than 2017, while five predict 2015 at the earliest. The median forecast was a minimum of five years.
“The challenges facing Greece remain extremely large,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “It will be a long while before they can get back to the market.”
Greece last sold bonds in March 2010 before the extra yield that investors demand for holding its 10-year securities instead of German bunds ballooned the next month to 443 basis points, then a euro-era record. That forced the country, facing 8.5 billion euros ($10.7 billion) of bond repayment, to start bailout talks with the EU, the European Central Bank and International Monetary Fund.
Ten-year Greek debt yielded 25.65 percentage points more than German bunds on June 22.
Analysts at New York-based Citigroup said there’s a 50 percent to 75 percent chance that the nation will exit the euro region in the next 12 to 18 months. Their view hasn’t changed since before the June 17 election.
Antonis Samaras was sworn in last week as prime minister, Greece’s fourth since November, after his New Democracy party won the vote. He is under pressure to tackle the nation’s debt crisis with the economy in a fifth year of recession and unemployment at 21 percent.
Greece won a second bailout this year from the EU and the IMF, taking the total rescue package to 240 billion euros. Under the country’s bailout program, Greece has to reduce its budget deficit to 7.3 percent of gross domestic product this year from 9.3 percent in 2011, and cut its primary deficit, which excludes interest payments, to 1 percent from 2.4 percent.
It may need a third bailout or another round of bond writedowns, or both, to get debt to a manageable level, said officials from the primary dealers, who asked that they not be identified. Some said policy makers must signal their willingness to share the burden by issuing common bonds before investors are confident enough to buy Greek securities.
“The only thing that will get investors’ trust back is to get something that looks like a fiscal union because Greece isn’t going to grow out of the problem,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “Investors have given up on the concept of a union that doesn’t have a fiscal transfer, but does have the interest rate and currency locked together.”
The country sparked Europe’s sovereign-debt crisis in 2009 after saying its deficit was bigger than previously thought, reaching a euro-region record of 15.8 percent of GDP that year.
Yields on Greek 10-year bonds dropped to 27.26 percent last week from a record high of 44 percent in March. The rate is at least 20 percentage points above the level at which Greece could fund itself, as the country along with Ireland and Portugal all sought aid when 10-year yields surpassed 7 percent.
The nation’s ratio of debt to GDP is projected to rise to 168 percent next year from 161 percent, according to the European Commission’s report of May 11. The economy will contract 4.7 percent this year and show zero growth in 2013, the commission said.
“The country is still insolvent and there is little progress in the way of fiscal adjustment and growth,” said Piero Ghezzi, the head of global economics at Barclays Capital in London. “Investors will need to see what the end game for Greece is before they buy its bonds again. A country can borrow in the market only if there is demand for its debt. For Greece, that can be easily five years away.”
Companies participating in the Bloomberg survey were Bank of America Merrill Lynch, Bayerische Landesbank, BNP Paribas SA, Citigroup, Commerzbank AG, Credit Agricole SA, Danske Bank SA, Deutsche Bank AG, DZ Bank AG, HSBC Holdings Plc, ING Bank NV, Jefferies International, Landesbank Baden-Wuerttermberg, Lloyds TSB Bank Plc, Nomura International, Rabobank International, Royal Bank of Canada, Royal Bank of Scotland Group Plc, Barclays Plc and UniCredit SpA. They provided their forecasts on June 21 and June 22 on a non-attributable basis.
Petros Christodoulou, former head of the Greek debt office, said June 19 that his nation isn’t close to selling bonds and there may be common euro debt issuance by the time it returns to the markets. He also said Greece will remain a member of the 17- nation euro area.
The IMF recommended issuing common debt on June 21 after warning that the euro-area crisis has reached a “critical” stage.
“Greece could return to the market quickly if leaders take the right policy decisions,” said Padhraic Garvey, head of developed market debt at ING in Amsterdam. “But the risk that things could go in a very wrong direction, taking Greece much longer to return to the market, is greater than the other way around.”
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