Markets ready to welcome Greece back

 International investors continue to underestimate political risk, but this has not diminished at all

By Dimitris Kontogiannis

Greece is likely to take the first step to access international markets this spring for the first time since April 2010, taking advantage of the favorable conditions for risk and the expected passage of a key reform bill in Parliament. Signs are mounting that the economy will exit the six-year recession in the second or third quarter of this year and growth may even surprise on the upside, but it is still too early to call the game over. The markets may be complacent about Greek political risk but that does not mean it should be underestimated.

Sharp exchanges between the government and other political parties and strikes by professional groups adversely affected by the liberalization of markets and the deregulation of professions dominated the political scene ahead of yesterday’s vote in Parliament for a key reform bill. However, that has not stopped international investors from buying Greek stocks and bonds, driving the benchmark 10-year treasury yield down to 6.6 percent. The strong appetite was clearly demonstrated by Piraeus Bank’s six times oversubscribed unsecured senior bond issue, the foreign interest in the share capital increases of Alpha Bank and Piraeus via the book-building process and major foreign funds’ reported interest in covering Eurobank’s capital needs.

Therefore, it would not be a surprise if Greece taps the market for a net amount of 1.5 to 2.5 billion euros of five-year bonds in the not-too-distant future for the first time since the spring of 2010. The gross five-year bond issue may exceed 4 billion euros since the country may also exchange new five-year bonds with longer-dated...