Following last week’s negotiations between the euro zone and the International Monetary Fund, Greece announced that it would spend 10 billion euros, or $13 billion, in a heavily discounted bond buyback program aimed at reducing the country’s growing debt. As Reuters reported on Monday, a successful bond buyback will bring the nation’s debt to a more sustainable level and unlock much-needed aid from the euro zone.
The bond buyback was one condition that the euro zone required for Greece to receive the next 44 billion-euro bailout installment.
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Private holders of Greek bonds have until Friday to register to participate in the program. The buyback will be arranged as a Dutch auction, meaning prices will start high and then decrease. A series of 20 outstanding bonds will be available for purchase; all are set at different prices depending on the bond maturity. Greece assigned a minimum range of 30.2 percent to 38.1 percent of the bond’s nominal value and a maximum range of 32.2 percent to 40.1 percent. The price range was well above market expectations, which indicated to Mizuho strategist Ricardo Barbieri that euro finance ministers “really want the swap to succeed.”
According to the Public Debt Management agency, the buyback will be completed by December 17.
Since May 2010, Greece has been reliant on loans from the IMF and the European Union, which have prevented the country from going bankrupt. However, while the euro zone intends for the program to decrease the country’s debt by 20 billion euros, many analysts contend that its long-term debt will still be a problem.