ESM's Regling warns Greece not to overpay for new bonds

By Harry Papachristou

The head of the euro zone's bailout fund has warned Athens not to pay investors too much when it returns to bond markets later this month, in comments to a Greek newspaper that hit newsstands on Saturday.

Greece is planning to sell bonds to investors for the first time since 2010, when it became the first euro zone country to be bailed out, and only two years after defaulting on its debts to private lenders.

Klaus Regling, head of the European Stability Mechanism (ESM), told the weekly newspaper To Vima it was «natural» that Greece wanted to test the markets, but warned it to not pay too steep a yield, to avoid increasing its debt load.

"Greek authorities must decide what price they're willing to pay,» To Vima quoted him as saying.

Greek 10-year bond yields have fallen rapidly since briefly touching 41 percent two years ago, but are still around 6 percent. «(Greek debt) remains expensive,» Regling said. «Every bond with such a high yield adds to the debt load."

Analyst estimates of Greece's potential market borrowing costs over five years range from 3.25 percent to 6.5 percent.

Athens aims to raise about 2 billion euros' worth of five-year bonds, according to banking and government sources.

Greece initially planned to return to bond markets with a small test issue in the second half of the year, after more tangible evidence that its ongoing, six-year recession is over.

But rapidly falling bond yields and pressure to produce an economic success before a key European election in May have persuaded Prime Minister Antonis Samaras and his fragile coalition government to bring the sale forward.

Investors will be encouraged by the fact that Greek debt has already been...