Greece sells short-term bills and raises €1bn

Greece sold €1.14bn of six-month Treasury bills on Wednesday, gaining some breathing room as the country negotiated with international creditors over a bailout package, with several billion euros worth of debt falling due in the coming weeks.

Although Greece has cobbled together sufficient funds to repay international creditors this month, its cash reserves will probably be depleted by the end of April, raising the risk of Greece leaving the eurozone.

"The probability of Grexit is higher than it's ever been since the start of the euro," said one European banker.

Lacklustre demand characterised the sale of bills at a yield of 2.97 per cent, a short-term borrowing cost well above other members of the eurozone. A closely scrutinised metric of demand at auctions hovered near the lowest level since 2006 at 1.3 times, according to data from Bloomberg. That matched the coverage ratio at a previous auction in March.

Attention has now shifted to May, when Greece is due to pay the International Monetary Fund €950m in two instalments, along with €2.4bn in payments for pensions and salaries.

Greek policy makers have been locked in talks with creditors to unlock its bailout facility as the country scrapes by. Later this week, a €450m payment is due to the IMF - a payment Yanis Varoufakis, the Greek finance minister, has reassured the nation will make.

Syriza, the radical anti-austerity government elected in December, has repeatedly found itself at loggerheads with the EU and IMF, as well as members within the party, over a reform package that would unlock €7.2bn of funding.

"Eventually, an agreement with Greece depends on political decisions. For Tsipras, making further concessions means estranging the most extreme part of Syriza, and finding new allies," said Alberto Gallo, head of European macro credit research at RBS.

Greece has been heavily criticised for proposed reform packages, including a suggestion that tourists could be used as tax collectors.

Zoeb Sachee, head of European government bond trading at Citi, said: "The question is who's going to give way more: Greece, or will the troika become more flexible in their demands?"

Mr Gallo added: "For the Eurozone, the cost of letting Greece exit, or of leaving Greece to its own fate, is a lot higher than the cost of a new bailout: it would transform the "irreversible" currency union into a mere peg that countries can get in and out of."

In 2012 a similar debt crisis saw the possibility of a Grexit mooted, and the government bond yields of peripheral countries such as Spain, Italy and Portugal soared as investors feared contagion.

But since the European Central Bank launched its landmark quantitative easing programme in March, the peripheral yields have dropped to record lows, and have continued to fall despite the renewed fears of a Greek exit.

Mr Sachee said: "QE is part of the firewall that can prevent contagion. It gives investors the feeling of greater comfort and leads to the perception that there will be less contagion, and may actually strengthen the bargaining hand of Greece's creditor nations."

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