* Greece raises 1.625 bln euros from sale
* Yield up 8 basis points to 4.96 pct vs May auction
* Bid-cover ratio 2.58 vs 3.58 in previous sale
* Foreign investors buy 37 pct of issue
(Adds details, dealer comment)
By George Georgiopoulos
ATHENS, June 14 Greece's short-term borrowing
costs climbed at an auction on Tuesday, a day after Standard &
Poor's cut its rating to the lowest of any country it covers and
warned that a move to restructure its debt would be considered a
Barely a year after Athens was granted a 110 billion euro
bailout package, the EU, the IMF and the European Central Bank
are haggling over a second funding deal, while Greece's ruling
party is struggling to push unpopular austerity measures through
Greece sold 1.625 billion euros of six-month T-bills,
including 375 million in non-competitive bids. The issue was
priced to yield 4.96 percent, up eight basis points from last
month and above the rate of about 4.2 percent that Athens pays
on its EU/IMF bailout loans.
The auction drew greater interest from foreign investors,
who bought 37 percent of the issue compared with 34.2 percent at
last month's auction, as Greece continues to fund itself in the
market for short periods. But the bid-to-cover ratio, a gauge of
overall demand, fell to 2.58 from 3.58.
"Yesterday's S&P downgrade weighed on sentiment, resulting
in a lower cover ratio and a higher yield," said a fixed-income
trader at a Greek bank.
"The market is also cautious ahead of the parliamentary vote
on the government's mid-term fiscal plan later in June," added
the trader, who asked not to be named.
European leaders are due to finalise a new rescue package
for Greece at a Brussels summit on June 23-24, but differences
remain over how to involve private creditors, pushing the cost
of insuring Greek government debt against default up to a record
high 1,600 basis points on Monday.
Investors are asking Greece to pay 1,428 basis points more
than Germany to borrow for 10 years, with the yield spread at
record highs and 10-year paper GR10YT=TWEB yielding over 17
percent as markets become increasingly convinced that Athens
will have to restructure its debt. [ID:nLDE75D0DQ]
S&P's cut on Monday means Greece now has a lower credit
rating than countries such as Pakistan and Ecuador, which has
been shut out of international markets since a 2009 default. The
cost of insuring Greek debt is now almost twice as much as the
price of insuring Pakistani bonds. [ID:nN13126859]
TAKE A LOOK-EU seeks Greek solution [ID:nLDE68T0MG]
Analysis on EU muddling through Greek crisis [ID:nLDE7582B2]
Analysis on Greece's bond market shut out [ID:nLDE7481Q7]
Graphics on bank exposure to euro zone debt:
Until March, Greece was funding itself on short durations at
a lower cost than the 5.2 percent rate on its bailout loans.
Euro zone leaders then agreed in March to cut that rate by 1
percentage point and stretch out the repayment period.
Analysts say demand for T-bills is fuelled by their likely
exclusion from any restructuring as well as demand from domestic
banks, who can use them as collateral to secure low-cost ECB
No Greek T-bills mature this month but debt agency PDMA
needs to roll over 2.4 billion euros of six-month T-bills on
July 15 and another 2.0 billion euros of three-month paper
maturing on July 22. It is set to auction three-month T-bills
the following week.
The settlement date for the 26-week T-bill auction is June
(Editing by Hugh Lawson)