Greek Bond Auction Versus U.S. Bond Auctions (NBG)

We have been given the pricing of Greece’s seven-year benchmark note offering.  Frankly, the yield is rather surprising.  The 5 Billion Euro issue bears a 5.90% coupon for an April 20, 2017 maturity date,  The $99.43 pricing gives an effective spread of 310 basis points over the mid-swaps or about 334 basis points over bond rates.

S&P and Fitch both rated them BBB+, while Moody’s has an A2 rating for these notes.  National Bank of Greece SA (NYSE: NBG) is what we use for a benchmark over trader sentiment in Greece.  Its ADR is up only 0.7% at $4.28.  Still, there are some issues to consider here on the international sovereign bond issuance.

A sovereign nation issuing debt with a spread of 310 to 334 basis points might seem like a steal.  But getting a nominal 5.9% or 6% after the discount does not seem that enticing when you consider the troubles reported about Greece.  Very few we have spoken with expect this issue to be a “one and done” issue when considering the PIIGS nations.

The most recent 7-year US Treasury auction went out with a 3.250% coupon at a yield of 3.374%.  An earlier 7-Year US Treasury auction issued on March 1 went out with a 3.00% coupon and a 3.078% yield, and a February 1 auction went off at 3.125% for a coupon and 3.127% yield.  An auction for a December 31, 2010 7-year had a 3.25% coupon for a 3.345% yield.

Comparing Greece’s pricing to the U.S. may seem unfair.  But even if rates go sky high the US can repay its debts.  In the worst of worst case scenarios, the United States can always print more money.  Historically, Greece has devalued its currency when needed.  Now that Greece is in the euro, it has no more printing press options.

These spreads may entice European investors, but that is about it.  If this was a “one-and-done” scenario it would be one thing.  What are the odds there is another similar offering down the road?  Probably pretty high.  And a second offering will likely have higher spreads.

JON C. OGG