Greek yields rise as market comeback euphoria fades

Fri Apr 11, 2014 6:50am EDT

(Updates with later prices, fresh quotes)

By John Geddie and Marius Zaharia

LONDON, April 11 (Reuters) - Greek bond yields rose on Friday as investors booked profits on the rally that preceded Greece's return to debt markets, although its new five-year bond held up relatively well in early trading.

Athens, which had been exiled from capital markets for four years and was bailed-out to the tune of 240 billion as its economy faltered, received massive over-subscription for its first sale of a new bond since before its bailout in 2010.

The transaction buoyed other euro zone government bond markets on Thursday, but the new bonds faced a difficult birth as trading started on Friday with investors losing their appetite for riskier assets.

"The euphoria is fading after yesterday's deal," said Owen Callan, a senior analyst at Danske Bank. "People are taking stock of the fact while its great that Greece regained some sort of access, there is still a very long road to recovery for Greece."

Greece's 10-year bond yields rose 24 basis points to 6.21 percent while other euro zone bond yields fell and global stock markets tumbled. Greek yields had fallen beneath 6 percent for the first time since March 2010 before Athens sold the new bonds on Thursday.

Nevertheless, banks managing the sale of Greece's new five-year bonds said they were trading over-the-counter at yields below the 4.95 percent at which they were sold, just after they were released to trade at 0700 GMT.

"The general market tone is weaker today but even with that the new bonds are holding up," said Andrew Salvoni at Morgan Stanley, one of the bankers managing the syndicated sale on Thursday.

Other market participants were reserving their verdict on the deal until prices appeared on trading screens, which is expected later on Friday.

Athens received 20 billion euros of orders for its 3 billion euro bond sale. The hefty demand led brokers to mark the new five-year bonds at around 4.80 percent yield before the deal priced on Thursday, expecting the bonds to rally considerably once secondary market trade began. Yields fall as the price of bonds rise.

However, some remained sceptical about demand for the deal.

David Schnautz, a credit strategist at Commerzbank, said the 20 billion euros of orders for the new bonds was not a true reflection of demand, as investors were prone to inflate their orders to make sure they received a decent allocation.

"(As an investor) you have to shoot very high to get what you actually want," he said.

Others said the final pricing was too aggressive, which was part of the reason Greek bonds sold off on Friday.

"It priced at least 25 bps below initial expectations. They took advantage of the big order book and probably they revised the pricing too much," said Alessandro Giansanti, senior rate strategist at ING.

"Some investors are (selling) thinking it came at levels that were too tight."

The Greek finance ministry said on Thursday a third of the bonds were allocated to hedge funds, investors notorious for having short-term trading strategies, leading some market participants to question why this was the case if demand was so high. (Editing by Peter Graff)

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