Cyprus Back To The Markets

Only 15 months after needing an international bailout and losing one of its banks, Cyprus is poised to return to the bond markets on June 18.

NICOSIA – Only 15 months after needing an international bailout and losing one of its banks, Cyprus is poised to return to the bond markets on June 18 in the fastest-ever comeback for a troubled Eurozone economy.

The government will have to offer higher interest rates to lure investors wary of what happened last year, when President Nicos Anastasiades agreed to confiscations of 47.5 percent of bank accounts over 100,000 euros ($137,000) and capital controls.

Those are just now being lifted. The conditions were in return for a 10 billion euro rescue package from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB).

The accompanying austerity measures rocked confidence in the already-shaky banks and government and set off angry protests that have waned.

“It’s not a domestic issue, it’s a European issue. People are searching for yield,” Martin Wilhelm, founder of IfK, a German Kiel-based bond boutique, which runs a bond fund with Acatis, told the news agency Reuters.

Cyprus is taking orders for its new bonds, which mature in June 2019, with an indicative yield of around 4.90 percent. It has already received  more than 1.5 billion euros of interest and will price the bonds later on June 18, reported IFR.

Wilhelm said he has placed orders in the sale and believes it will price at an yield between 4.75 and 4.90 percent, around the same as the first Greek-issued bonds in four years produced in April, bringing investors tidy profits in return.

The sale comes just two months after Greece sold a new five-year bond at a yield of 4.95 percent which was one of the fastest return to markets of a defaulted country. Those bonds have since rallied to 4.25 percent, according to Tradeweb data.

Returns on all Eurozone sovereign bonds have been squeezed, to record lows in many cases, as the European Central Bank has pumped the market with liquidity and cut interest rates so far they have turned negative.

Cyprus’ credit ratings remain deep in junk territory following a debt exchange in March last year that ratings agencies classed as a default, but the bailout and sticking to the tough conditions, along with a vibrant tourism economy, have spurred a comeback.

Cyprus’ economy is expected to contract by 4.2 percent this year, less than the 4.8 percent initially expected, and some, such as local consultancy Sapienta, see the decline in output at closer to 3 percent.

Like Greece’s deal in April, the buyers are expected to largely British- and U.S.-based hedge funds.