Bonds News

WRAPUP 1-Greece to raise more funds in bond market

* Greece to issue another bond in February

* IMF chief says Greece needs political will to change

ATHENS, Jan 26 (Reuters) - Greece decided on Tuesday to tap debt markets again in February, encouraged after its first debt issue of the year soothed market concerns about its ability to ride out its worst economic crisis in decades.

Taking advantage of the tailwind of Monday’s eight-billion euro bond issue, Greece promised another bond in February, reassuring markets it can raise funds as it takes unpopular steps to cut a huge budget deficit that has weighed on the euro.

“Having passed the first test is a precedent,” said a senior banker in Athens. “A second successful sortie will help boost confidence.”

The head of the Greek Public Debt Management Agency, Spyros Papanicolaou, told Reuters the country planned a 10-year bond in February, of up to five billion euros. “The final amount will be determined by the market response,” he said.

The new Socialist government, which inherited a fiscal mess that has hit Greece during its first recession in 16 years, cheered investors’ demand for the bond sold on Monday -- which at 25 billion euros ($35.35 billion) was equivalent to nearly half the country’s full-year financing needs.

But while giving the country a funding respite, the bond was priced at a large price premium -- at a yield of 6.2 percent compared to a similar bond issued in April at 5.5 percent -- and officials were quick to point out fiscal problems remained.

The head of the International Monetary Fund, Dominique Strauss-Kahn, said on Tuesday that the Greek economy is at a “crucial crossroads and needs to restore its credibility”.

“All depends on the political will,” he said. “I am confident that the Greek economy’s current crisis can be overcome, but with deep changes at all levels.”

The European Union and rating agencies have raised pressure on Greece to get its house in order but analysts fear efforts to do so could be undermined by social opposition.

The government has launched a plan to cut the budget deficit to below 3 percent of gross domestic product by the end of 2012 from 12.7 percent last year through welfare cuts, tax reforms and savings on public sector wages.


Both of the country’s main public and private sector unions plan strikes in February and farmers have protested for more than a week, blocking roads and border crossings to EU fellow member Bulgaria, demanding higher prices for their produce.

The euro has been undermined in recent weeks by Greece’s debt problems, as it has thrown the spotlight on other weak euro members such as Portugal, Ireland and Spain.

European Central Bank Executive Board member Juergen Stark warned on Tuesday that high public deficits could bring further ratings downgrades of euro zone countries. Rating downgrades in recent months have weighed on markets in markets such as Spain and Portugal.

“In some countries 2009 deficits are expected to be in double digits,” Stark said in a speech at a real estate sector conference. “Thus, further country ratings and further negative reaction in the financial markets cannot be excluded.”

Investors are closely watching Portugal’s government as it announces on Tuesday steps to cut its budget deficit when it presents its 2010 budget bill [LDE60E1ZK].

Greece’s problems have led some analysts to voice concerns that the kind of pressure Greece has faced in financial markets in recent days could ultimately lead to strains that might break up the euro zone.

But OECD chief Angel Gurria said on Tuesday he believed that would not happen and market pressure on Greece would ease.

“No, I don’t see that danger,” he said, when asked about strains leading to a break up of the euro. “There are no conditions that could justify that assumption.”

The euro bounced on Monday after Greece’s debt auction but was lower on Tuesday as investors moved out of the euro after China implemented a planned increase in required reserves for some banks, unnerving investors.

Greek markets were also lower on Tuesday after rising on relief from Monday's bond issue. Greek banking stocks .FTATBNK were 2.6 percent lower while the premium demanded to hold its 10-year bond compared with German Bunds was up at 301 basis points.