National Bank of Greece Returns to The Bond Market

Greece’s Eurobank is entering the bond market for the first time in over three years, becoming the country’s most recent lender to sell a type of debt that will be bought by the European Central Bank. The NBG (National Bank of Greece) has commissioned several investment banks to begin selling the three-year “covered” bonds next week, as the Greek financial sector returns to the international market.

The deal comes in the wake of increasing demand for the sale of €750 million of bonds by the National Bank. These covered bonds are secured against a pool of loans, typically mortgages, to provide investors with less risk in the case of default. The ECB’s quantitative easing program has turned the central bank into one of the largest buyers of covered bonds, and it now holds €234 billion of debt.

The ECB’s total sovereign holdings are now €1.77 trillion. While Greek government bonds are not yet eligible for ECB’s sovereign debt purchases, the nations covered bonds could benefit from central bank demand. The central bank can buy covered bonds in both primary and secondary markets. The lender’s sale is likely to be rated at B3, or low single B, by Moody’s.

This rating comes ahead Greece’s expected sale of a portfolio of non-performing loans over the next couple of months. Greece’s banking sector is now under pressure to reduce more than €100 billion of non-performing exposures, with the Bank of Greece targeting €67 billion by 2019. Last week, the NBG bond attracted more than €2 billion of orders.

“Central banks and other international organizations will be the primary buyers of the debt. However, private investors may also benefit from the lower coupon rate and higher yield” said Keith Knutsson of Integrale Advisors.