(Updates with new prices on the five-year bond, new comments)
By John Geddie and Marius Zaharia
LONDON, April 11 Greek bond yields rose on
Friday as investors booked profits on the rally that preceded
Greece's return to debt markets, with even its sought-after new
five-year bond succumbing to selling pressure.
Athens, which had been exiled from capital markets for four
years and was bailed-out to the tune of 240 billion euros as its
economy faltered, received bids seven times the amount in its
first sale of a new bond since before its bailout in 2010.
The transaction had 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."
Yields on the new Greek bond traded above 5 percent on
Friday, compared with the 4.95 percent level at which it was
issued. It had traded at lower yield levels earlier on Friday,
but that prompted immediate profit taking from Thursday's
buyers. Yields rise as the value of the bond falls.
Although its economy looks to have turned a corner, Greece
is still seen by many as a weak link within the euro zone. The
government holds only a two-seat majority in parliament and
early elections are a constant risk, with the anti-bailout
Syriza party leading in opinion polls.
Many investors still fear social unrest as unemployment,
although falling, remains more than twice the euro zone average
at almost 27 percent.
"We still see Greece as pretty vulnerable, they have
political issues ... social tensions are quite high," said
Jozsef Szabo, head of global macro at Aberdeen Asset Management,
a firm that keeps away from Greece.
Yields on older Greek bonds jumped, with the 10-year
yield rising more than a quarter of a percentage
point to 6.25 percent.
In the run-up to the sale, Greek 10-year yields had fallen
to four-year lows below 6 percent.
"It's quite obvious that many of the guys that bought the
bond were not the buy-and-hold type. They were just fast money,"
one trader said.
At their peaks following a March 2012 restructuring that
imposed losses on debt holders, Greek bonds yielded above 30
Other euro zone bond yields rose as well on Friday, while
global stock markets tumbled. Given the bigger picture, some
market participants said the new Greek bonds were doing well to
sell off less than their longer-dated peers.
"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.
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.
Friday's moves caught them on the wrong foot.
David Schnautz, a strategist at Commerzbank, said the vast
orders for the new bonds were 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 in the market
to question why this was the case if demand was so high.
(Editing by Peter Graff)