February 9, 2018 / 12:02 PM / 7 months ago

New Greece bond slumps after equities extend lower

LONDON, Feb 9 (IFR) - Greece’s new €3bn seven-year bond was down over three points in cash price terms on Friday after further equity market volatility, leaving investors nursing heavy paper losses.

The 3.375% trade - the lowest coupon on an outstanding Greek sovereign bond - was bid late morning at 96.16, down from the 99.236 reoffer. That gives a 4.015% yield, according to Tradeweb prices, sharply higher than the 3.5% print.

Marketing had started at 3.75% area but talk was tightened on the back of a €6bn-plus book.

Greece is due to exit its third bailout programme in August and has been keen to show renewed market access. This was its longest trade since returning from a three-year exile last year.

“We had a very tough close on Thursday night and it will take a bit of time for the market to settle down,” a lead banker said.

“Also, the liquidity difference between Greece and other peripherals is pretty marked and the moves are a little more than in other markets, which can absorb flows in a way Greece can’t.”

The performance contrasts with other peripherals. A Portugal 2.125% Oct 2028, for example, was bid as tight as 2.01% before slipping back to 2.07%, 1.5bp higher than its Friday open.

“What’s the timeline under which you consider performance?,” the lead said. “Is it from day one in choppy markets or how it settles down over time?”

World stocks were set for the biggest weekly decline since 2011, with the Dow Jones index losing more than 4% on Thursday. Asian and European shares followed on Friday.

It not the first time Greece has been caught in the crosshairs. A €1.5bn three-year priced in July 2014 also soured in secondary trading as volatility hit. The sovereign entered a third bailout 12 months later.

“There are parallels with that deal,” a banker away said. “They were too ambitious - why move the pricing like they did? They lost €800m of demand and you have to remember that some of the book came from the joint leads. Their mindset was wrong. They should have come with a generous price and a trade that performed. Instead, it’s cheapened up their whole curve. They’ve not learnt their lessons: it’s the same circus, just different clowns.”

He said the distribution could have been a factor in the poor performance. Hedge funds were allocated 31.5% and banks/private banks 22.9%. UK and Ireland were 43.7% and Greece 19%.

“About half went to UK investors which we know are more trading-orientated accounts,” the banker said. “What this deal tells me is that Greece doesn’t have certainty of access. The bond might recover but at the end of the day, the signal this sends in terms of access is not great.” (Reporting by Helene Durand; Editing by Sudip Roy, Julian Baker)

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