The collapse of Greek bond prices just 24 hours after the country successfully sold €8bn ($11.3bn) in new bonds has raised concerns about whether new issues are being too aggressively marketed at a time when borrowers are rushing to tap their funds.
Lead managers on the €8bn bond sale drew more than €25bn in orders for the five-year, fixed-rate bond, five times more than the government had reckoned on.
But. despite the large order book, which would suggest strong demand for the deal, the yield on the bonds rose on Wednesday from 6.10 per cent to 6.35 per cent in secondary trading.
Greek 10-year bonds yields rose 69 basis points at one point, the biggest daily rise since the country joined the euro. Ten-year bond yields finally closed at 6.70 per cent, 48bp higher on the day.
Some investors said the bonds came under pressure after the Greek government said there was no agreement over a separate sale of bonds to China and no mandate to an investment bank to negotiate such a sale.
Others questioned whether the demand suggested by the large order book was genuine.
The concerns come as the price of other bonds has fallen on increasing supply and weaker equity markets.
“There is a huge tendency to overmarket these issues, to create hype, to make investors feel like an idiot if they are not in the deal,” said one London-based fixed-income fund manager. The investor believed some bond deals were being sold on the basis that they would trade up in the secondary market rather than on the credit quality of the borrower. “The suggestion is that you should buy the deal because it is 10 times oversubscribed …it is a herd mentality. It shows how immature the market is that we get these calls and that they work …it is an insult to my side of the street.”
Gary Jenkins, head of fixed income at Evolution, said: “The calculators syndicate bankers use always seems to add a nought on to the real book size.” Morgan Stanley, one of the banks that arranged the €8bn Greek sale, denied order books were overinflated.
One banker close to the deal said: “We saw significant demand because investors believe the current trading levels of Greece do not reflect the economic fundamentals – while the volatility may continue, it does seem overdone.”
Last week a body representing investors in covered bonds highlighted their concerns about the process of “shadow bookbuilding.” It believed this was restricting the time investors had to evaluate information.
Martin Egan, global head of primary markets at BNP Paribas, said investors had expressed concerns over the management of bond order books and how banks marketed deals. This arose last year when order books for deals were very big and investor allocations poor.
“There is a move to make the process of issuing and investing in debt more efficient and transparent. Debt capital markets is a fast moving, innovative space and what we need to find is common ground where we match issuer and investor in primary and secondary markets.”
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