M&G’s Mike Riddell has warned that investors piling into Greece’s bond issue today have begun to “ignore risks and chase returns”.
Greece had been locked out of the bond markets since the eurozone crisis kicked off in 2010, but today it has returned to the markets looking to raise up to €3bn (£2.5bn) on a 5 year bond issue.
The bond has received huge interest from investors and has been significantly oversubscribed, which means Greece may be able to sell the bonds on a yield of less than 5 per cent, having initially targeted a yield between 5 and 5.25 per cent.
Mr Riddell, who manages the £42.2m M&G International Sovereign Bond fund, suggested that the fact Greece is able to get a yield of less than 5 per cent is evidence that central bank policy in recent years has created a “colossal moral hazard”.
“The promise of seemingly infinite liquidity and the perception that almost nothing can be allowed to default has pushed investors to ignore risks and chase returns,” he said.
He added: “Those who are buying into Greece’s new issue will no doubt flag Greece’s primary surplus as a major reason, but while the turnaround in the Greek economy is impressive, it’s worth noting that the IMF forecasts Greece’s gross public debt-to-GDP ratio to end 2015 north of 170 per cent, and that’s based off what again seem to be fairly heroic growth assumptions.
“Liquidity is no substitute for solvency, and I don’t believe that Greece is solvent, which makes the new issue an easy one to avoid.”
