Europe watches massive Greek bond issue

Greece is preparing to launch a multi-billion euro bond issue in order to manage its short term debt and ballooning budget deficit.

Greek bonds have lost investors 2.8% so far this year, according to Bloomberg/EFFAS indexes, compared with a 1.36% gain for German securities.

However David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt, voiced optimism in a note today that "Greece should be able to prove that it can still obtain funding in the capital market.

"We are sticking with our strategic recommendation to position for an outperformance of Greek bonds and other peripheral government bonds."

The bond issuance is taking place as a bail-out package worth an estimated €25bn is being hammered out by eurozone finance ministers.

The financial assistance is thought to include loans and guarantees, with the burden being spread between members of the European single currency and Germany expected to put up between €4bn to €5bn.

Help comes amid pledges from Greece to cut its deficit from 12.7% of gross domestic product (GDP) in 2009 to the 3% limit proscribed by the EU by 2012.

Representatives from the European Commission, European Central Bank (ECB) and the International Monetary Fund (IMF) arrived in Athens today to access the effectiveness of the Greek austerity measures.