Thursday, December 21, 2017

Greek Bond - Bill Spreads

Greek government bond yields have come down dramatically in the secondary market during the past few weeks.  Apart from the implied boost in investor confidence, there are also more tangible benefits.

Specifically, Greece has 15 billion euro outstanding in 3 and 6 month treasury bills, rolling over monthly in staggered maturities. Yields for those are also coming down, and are about to drop further.

Taking the 3-month bill as an example, it started the year paying 2.70% and the last auction on December 13 came in at 1.60%.  By comparison, the German 3 month bill is negative at -0.86%.

The driving force for further drops in bill yields is the stellar performance of the 2 year note, which is now at 1.80%, just 20bp above the latest bill auction.

For the last six months the spread between the two has been holding around 100-150 bp, so the next 3 month auction should come in at significantly lower rates. 

I don't expect this spread to hold as high with rates coming down - the equivalent German 2y-3m spread is a mere 15 bp - but it's apparent that the Greek state will be saving at least another 50-100 bp on the cost of rolling over its 15 billion euro in bills, going forward.  It comes to 75-150 million euro annually, a rather tidy sum.

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