Yesterday Greece was a rock star, returning to public debt markets with a € 3 billion 5 year note priced at a yield of 4.95%. For a country with such a recent history of default, ratings still well below investment grade, which has not seen positive economic growth in over five years, the bond deal was pretty remarkable. As little as nine months ago, yields on Greece’s 10 year restructured bonds were over 11%. As early as yesterday morning, a car bomb exploded outside the Bank of Greece in Athens, apparently in protest of the expected offering. And yet investors could not get enough of the new deal, which was reportedly 8x oversubscribed. Yes, Greece was a rock star.
But maybe this is indeed a life of illusion. A bond that had € 20 billion in demand only yesterday should probably be trading higher, as investors round up their positions. But no, the bond looked like it traded up a little, and then moved steadily lower throughout the day.
Back in the U.S., Investment Grade Credit seemed impervious for most of the past week to the global macro sell-off that’s been going on. Credit spreads have hardly budged – until today, when they finally showed some signs of weakness. Total returns were positive through yesterday, driven primarily be lower interest rates, leaving the broad credit markets up nearly 1.0% for the week. With rates down again, total returns should remain positive, but we expect excess returns for the week may dip into negative territory.
Supply was about $21 billion, about the same as last week, and dominated by global and 144a issuers, as U.S. Corporates enter their pre-earnings blackout periods. Credit Agricole was one of the larger issuers, bringing $3.0 billion across a 5 year fixed, 5 year floater, and a 10 year. The 10 year priced at +130 (which is tighter than Goldman Sachs current 10 year), and moved a few basis points tighter today in spite of the overall market weakness. The market is much more comfortable with the safety of the French bank – perhaps in part since it disposed of its Greek subsidiary Emporiki in a transaction completed just a little over a year ago.
Was Emporiki a timely disposition? Or has Greece achieved sufficient reform to get its economy on track? We’ll see how it all pays out, but my guess is that it takes more than a coat of paint to turn an old jalopy into greased lightening.