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UPDATE 2-Greece raises 3 bln euros from its new bond at higher cost, lower demand

·2 min read

(Adds final size, quotes from minister, fund manager)

By Yoruk Bahceli and Lefteris Papadimas

ATHENS, Jan 19 (Reuters) - Greece received more than 15 billion euros of demand for a new 10-year bond sale on Wednesday, tapping the markets at a challenging time as the European Central Bank's pandemic bond-buying stimulus scheme is set to end in March.

The demand was half the 30 billion euros Greece received for its previous 10-year bond sale last June.

Greece raised 3 billion euros from the sale with a yield of around 1.8%, Finance Minister Christos Staikouras said.

"Τhe cost of borrowing is considered very satisfactory, taking into account the current international situation," he said.

The yield is nonetheless much higher than the 0.88% it paid last June, when its borrowing costs were near record lows.

"The higher cost by about one percentage point reflects the increase in yields across Europe," said Kostas Boukas, head of asset management at Beta Securities in Athens.

Benchmark Greek 10-year yields have surged more than 40 bps over the last month to 1.68%, the highest since May 2020, reflecting a broader rise in euro zone bond yields as markets position for a March rate hike from the U.S. Federal Reserve and the ECB plans to end its PEPP bond buying in the same month.

That will mean junk-rated Greek bonds, a substantial amount of which the ECB has purchased since 2020, will no longer be part of its net bond purchases. The ECB only purchases investment grade securities in its regular bond-buying programme that will remain once PEPP ends.

"For that reason I won't be getting involved in the syndication," said Gareth Hill, fund manager at Royal London Asset Management.

However, the ECB will continue to reinvest proceeds from its maturing PEPP holdings and will have the option to choose where and when it invests in times of market stress. Those could help cushion some of the blow to Greece.

"I think if you get to that stage where they're having to use maturing proceeds from France or from Germany in order to buy Greek bonds, at that stage that's an indication that the market needs propping up... So if you get to that stage, I don't think you want to be long Greek bonds," said Hill.

The bond sale is Greece's first of 2022 and follows a revision of the country's BB credit rating outlook to positive last Friday by Fitch Ratings.

Greece plans to borrow 12 billion euros ($13.61 billion) this year. It has accumulated a cash buffer of about 32 billion euros, enough to cover at least three years of maturing debt. (Reporting by Yoruk Bahceli and Lefteris Papadimas, Editing by Angus MacSwan and Gareth Jones)

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