Greek Bills Sale Will Highlight Diverging Fortune From Spain’s

by Lukanyo Mnyanda

11:19 AM EET

March 18, 2015

(Bloomberg) -- A Greek short-term debt sale on Wednesday will demonstrate how countries that were at the forefront of Europe’s debt crisis have taken very different paths. Spain yesterday came close to selling bills that paid no interest.

Greece is scheduled to auction 1 billion euros ($1.1 billion) of 91-day securities on Wednesday amid the backdrop of an impasse over financial-aid approvals from Europe. In the previous auction of three-month bills on March 11, it sold 1.3 billion euros at an average 2.7 percent yield. Spain sold 411 million euros of similar securities at 0.004 percent on Tuesday, having never done a bill sale with a negative yield.

While Greece’s government is grappling with three-year rates above 20 percent and having the only euro-area sovereign debt to lose investors money this year, demand for Spanish bonds was buoyed by European Central Bank asset purchases and an improving economy after government reforms to fix its finances.

“Greece’s fiscal dynamics are far worse” and account for the difference in borrowing costs, said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Investors are treating Spain and Greece completely differently.”

The yield on Greek three-year notes rose eight basis points, or 0.08 percentage point, to 20.505 percent as of 9:15 a.m. London time on Wednesday, and touched 20.587 percent, a four-week high. The 3.375 percent note due in July 2017 fell 0.08, or 80 euro cents per 1,000-euro ($1,060) face amount, to 70.525. The 10-year rate climbed seven basis points to 10.88 percent.

Unable to access bailout funds and locked out of international capital markets, Greece is holding out for a deal at an EU summit starting Thursday to unlock a payment from its 240 billion-euro rescue package, European officials with direct knowledge of the situation said on Tuesday. The country is facing more than 2 billion euros in debt payments Friday.

On the other end of Europe’s bond-market spectrum, Germany is scheduled to sell 4 billion euros of 10-year bonds, after a previous sale on Feb. 18 drew a record-low average yield of 0.37 percent. The yield on the 0.5 percent security maturing February 2025 fell 2 basis points to 0.27 percent on Wednesday. Thirty-year rates were at 0.72 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White