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Bond spreads under pressure

Back to Time for a reality check

The downgrades of Greece's long-term credit rating by Standard & Poor's and Fitch did little to the 10-year yield spread between Greek government bonds and Bunds but bankers warn that this might change if Greece fails to deliver on its commitment to return to the path of fiscal consolidation.

The 10-year spread over Bunds widened by three basis points to 20.5bp in mid-September when the government notified the EU authorities of larger than expected budget deficits revealed by the audit of its fiscal accounts. It did not take long, though, for the yield gap to shrink to pre-notification levels. The yield spread has traded in a narrow range of 17 to 18 basis points over Bunds lately, unmoved by the S&P and Fitch downgrades.

"We have seen a marginal widening to the Greek bonds versus the German Bunds in recent weeks following the downgrade of the Hellenic Republic by S&P but very quickly this has been reversed, with Greek treasuries being back in the front line of global investors' interest," says George Kofinakos, general manager at Citigroup Global Markets Greece.

New issue pricing challenge

The 10-year long-dated government bond yielded about 17bp over Bunds in mid December.

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