GREECE´S 3-MONTH TREASURY BILL YIELD DOUBLES ON DEFAULT CONCERN / BLOOMBERG ( RECOMMENDED READING )

Greece’s 3-Month Treasury Bill Yield Doubles on Default Concern

By Paul Dobson

April 20 (Bloomberg) -- Greece’s borrowing costs more than doubled at an auction of three-month bills amid concern the nation will default unless it taps a bailout package brokered by the European Union.

The southern European nation sold 1.95 billion euros ($2.6 billion) of 13-week securities today to yield 3.65 percent, compared with 1.67 percent at a sale of similar debt on Jan. 19, according to the Athens-based Public Debt Management Agency. That’s less than a forecast for 4.5 percent from Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. Investors bid for 4.61 times the securities offered, the PDMA said.

“I’m impressed that they did nearly 2 billion euros and it was covered 4.6 times,” Major said today in an e-mailed response to questions. “The rate was much lower than many had expected and indicates that there is good demand for short paper. There is, however, a limit to how many Treasury bills Greece can issue because of the impact on average life and future roll-over risk.”

While EU Economic and Monetary Affairs Commissioner Olli Rehn said last week he’s confident member nations are committed to the plan, some will need parliamentary votes on their contributions. Two people familiar with the matter cited Bundesbank President Axel Weber as telling German lawmakers yesterday Greece may need more than the 30 billion euros promised by the EU as it seeks to cut a budget deficit that is more than four times the region’s limit.

Widening Spread

At its previous sale of Treasury bills on April 13, Greece issued a combined 1.56 billion euros of six-month notes to yield 4.55 percent and one-year securities yielding 4.85 percent.

The extra yield investors demand to hold Greek 10-year bonds instead of German bunds, the euro-region’s benchmark government securities, rose today to as much as 472 basis points, the most since Bloomberg records began in 1998. The average spread in the past 10 years is 61 basis points. Greek two-year notes fell, pushing the yield 23 basis points higher to 7.51 percent.

Surging borrowing costs for Prime Minister George Papandreou’s government prompted EU finance ministers to agree to a bailout on April 11. Under the plan, the International Monetary Fund would provide a further 15 billion euros. Talks in Athens involving the IMF, European Commission and European Central Bank, aimed at working out the terms of the rescue package, were delayed yesterday after airspace across northern Europe was closed because of an Icelandic volcano.

Last Updated: April 20, 2010 05:32 EDT