THE TRIBUNE – Why the demand for the Greek debt is so strong ?
CIARAN O’HAGAN – This obligation is a unique product, which has no comparable, with such a yield, to 4.62 per cent, while being liquid. To have such a performance, investors must look for small issuers, corporate or the subordinate bank, but this is not the same liquidity. By buying this sovereign debt, investors can diversify their risk. However, today, with interest rates so low, many of them have regained appetite for risk. And the only sovereign issuer which carries out loans of the same size is the Portugal, but his obligations to five years and bear a yield of 1.15 %, the gap is gigantic, with 4.62 per cent of the Greece.
[Ciaran O’hagan is responsible for the research on the interest rates in the euro zone, Société Générale CIB.]
What investors are typically interested in ?
This issue may be of interest to a wide range of investors seeking yield : Mutual funds, funds, specialist debt, “high yield” (issuers of high yield, rated below the category of “investment”), experts in emerging markets and undoubtedly some hedge funds, may also be asset managers, rather than insurers who are looking for investments with less risk. Investors, who subscribe, know that they are purchasing a country risky, which is rated Triple C or easy B according to the agencies, it is more of a notch of difference with the Portugal, for example. It is necessary that the investors have strong nerves and a good tolerance to strong variations of course : when we look at the history of bond April 2019 issued in 2014, one sees that they have fallen from 100 to 40 in less than a year and then lifts from 70 to more than 100 since the spring of 2016.
Why Greece has not raised more money ?
It is true that 3 billion euros is not a huge amount in relation to the order book that has exceeded 7 billion. The demand has, therefore, been served with only half. But some orders demanded a higher yield, 4,875 %. Greece was thus able to obtain a tightening of 25 basis points in the yield forecast in the course of the day, it is a performance that is quite exceptional. If the situation is stable, we can imagine that Greece will likely come on the market in a year. In 2014, his show five years was € 4 billion. Greece could also issue a longer term, but this has a cost : Argentina has issued a loan to 100 years in June, with a yield of 8 %.
The economic news is pretty good in Greece, the recovery is there, the public finances are on the right track and the agreement with the european Commission, the ECB and the IMF is expected to last for a while. That said, the implementation of reforms is difficult and very slow in Greece, as we see it, to that of the cadastre. There is also the general context : if the Fed goes back to its rate, there will be a substitution effect that is damaging to the obligations at risk, as investors are referred to the u.s. Treasury.
Interview by Delphine Cuny