The European Central Bank could buy covered bonds issued by the National Bank of Greece under its asset purchase scheme, providing indirect support for the Greek economy, according to financial sources familiar with the matter. NBG this week sold 750 million euros of covered bonds - debt backed by collateral such as mortgages - which may be the first bonds by a Greek issuer that the ECB can purchase.
Several other Greek lenders are expected to issue covered bonds in the next few weeks which should also be eligible for the euro zone central bank's bond-buying scheme. The ECB has so far refused to buy government debt issued by Greece which has been bailed-out three times by its euro zone peers. The ECB is not believed to have bought any of the NBG bonds in the initial public sale, but banking sources close to the deal say it may do so after evaluating the credit.
"The ECB does not come out with exclusive criteria on which bonds are eligible or not for the purchase programme but the bankers and the lawyers who worked on this (NBG) deal believe the bonds are eligible," said one banker who worked on the transaction. This view was echoed by a second banker who worked on the deal. An ECB spokesman declined to comment.
To date, the ECB has bought debt from every single euro zone country bar Greece under its 2.4 trillion euro asset purchase programme, aimed at raising inflation and growth in the bloc. The vast purchases have pushed down countries' borrowing costs and allowed them to extend their debt profiles by selling long-dated bonds, both effects Greece has so far missed out on.
Citi rates analyst Michael Spies said he also believed Greek covered bonds including NBG's would be eligible for ECB's bond buying programme. "ECB purchases of some Greek covered bonds under the purchase programme should be allowed and therefore be a supportive factor for issuance," he said.
Issuers do not typically say which individual investors bought deals in the primary market, although according to the lead managers, 11 percent of the NBG deal was placed with official institutions and central banks. Asset managers bought the majority, at 56 percent. Greek government debt was excluded from the ECB's purchases when the programme began in early 2015, due to its low credit rating and uncertainty over the left-wing government's compliance with the conditions of its international bailout.
The ECB can generally buy only investment-grade rated covered bonds, although it has made an exception for some Greek and Cypriot securities if certain conditions are met. In June, a source told Reuters the central bank needs more clarity on what kind of debt relief Greece will get from its international creditors if it is to buy Greek government bonds as part of its monetary stimulus programme.
A month later, Greece ended a three-year hiatus and returned to the European bond market, selling 3 billion euros of five-year bonds, laying the foundations for future borrowing as it weans itself off external aid. The European Investment Bank - which is backed by all the EU member states - is buying a chunk of a 500 million euro five-year covered bond issued this month by Greek lender Piraeus Bank to support small and medium sized companies.
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