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Snubbed in Europe, Greece Hunts for $10 Billion in U.S.

By    |   Tuesday, 06 Apr 2010 01:29 PM

Greece is on its way to selling itself, for the first time, as an emerging-market country as demand for its debt is dwindling in Europe.

Greece reportedly plans to launch a multibillion-dollar bond and try to find between $5 billion and $10 billion dollars in the U.S. money markets for its Treasuries.

No doubt Greece will have to offer serious interest premiums to convince investors.

Greece’s bond yields are much higher than those of many developing world countries such as Brazil, Mexico and Poland.

Greece’s 10-year benchmark yields are about 6.5 percent while Brazil’s are around 4.9 percent. Mexico is at 4.8 percent and Poland stands at 5.5 percent.

Besides that, the latest figures available from the Bank of Greece show more than 3 billion euros ($4.06 billion) of deposits held by Greek households and companies have left the country in February, while in January about 5 billion euros ($6.77 billion) of deposits went offshore, with Switzerland, the United Kingdom and Cyprus being the largest recipients of the money.

Greek bankers are becoming seriously concerned by these outflows because they can't get funding elsewhere at the moment.

CreditSights commented in its recent analysis on Greece that “Greek banks won't be able to increase lending volumes if deposits don't increase, and a continued deterioration in their deposit base will lead them to cut back lending even more, stifling real economic growth.”

The CreditSights report also said that “most bankers say they are worried about the stability of Greece and Greek banks. This combined with the tax issue is making many people nervous about keeping their money in domestic banks or within the country.”

And if all this wasn’t troublesome enough, Greece reportedly wants to amend the European Union’s standby aid plan in order to avoid the imposition of onerous fiscal measures by the International Monetary Fund. That standby aid plan would see a combination of bilateral loans from euro zone countries and aid from the IMF if Athens is unable to meet its funding.

One Greek official said: “The reason is that since the (European Union) summit, the Greek Prime Minister has been receiving information from the IMF about the possible measures and reforms it would be asking in exchange for financial support … The measures are tough and might cause social and political unrest. After that, various cabinet members voiced their opposition to the IMF contribution.”

Greece’s May borrowing requirement stands at about 10 billion euros ($13.5 billion) to roll over maturing debt and meet interest payments.

Yes, all this doesn’t look encouraging. But for those who are fully capable to take risks with the Greek sovereigns, the new Greek Treasuries that will come on the U.S. market in the coming weeks could be interesting.

Please note that I don’t advise that these Greek bonds are for everyone — only investors who can afford taking that kind of risk should consider this.

On the other side of the Atlantic, it will be interesting when the Federal Open Market Committee releases the minutes of its recent meeting to see if there are more committee members who are joining Kansas City Federal Reserve Bank President Thomas Hoenig’s view that interest rates can't be kept at their current low rates for an "extended period."

The direction for longer-term U.S. Treasury yields is clearly up and we have already seen the 10-yield touching a 4 percent yield.

Please take note that I don’t expect shorter-term interest yields going up significantly anytime soon.

One could ask if the pieces have started falling in place and the stage is being set for the U.S. stock and bond markets to “sell in May and go away.”

Remember, this didn’t work out too well in 2009.

Of course, we’ll have to wait and see how the U.S. bond and stock markets will move over the summer.

I think we won’t have to wait another 12 months to see the 10-year Treasury yield crossing the 5 percent mark.

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Greece is on its way to selling itself, for the first time, as an emerging-market country as demand for its debt is dwindling in Europe. Greece reportedly plans to launch a multibillion-dollar bond and try to find between $5 billion and $10 billion dollars in the U.S....
hans,parisis,greek,greece,bonds
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2010-29-06
Tuesday, 06 Apr 2010 01:29 PM
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