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Greece could return to the bond markets as early as next week

  • The Greek government needs to get the timing right to avoid any political or economic backlash
  • Greece's last market return was in 2014
A farmer holds a Greek flag in front of parliament during a protest against the government's tax and social security reforms on February 14, 2017 in Athens, Greece.
Nicolas Koutsokostas | Corbis | Getty Images
A farmer holds a Greek flag in front of parliament during a protest against the government's tax and social security reforms on February 14, 2017 in Athens, Greece.

The Greek government seems ready to tap the bond markets again as early as next week, a source close to the situation told CNBC on Tuesday, which would mark the first time since 2014 that the country has borrowed from the capital markets.

Athens' return is important to show that the reforms under the current bailout program are working to both international investors and Greek voters. However, the government needs to get the timing right to avoid any political or economic backlash.

A source close to the situation, who preferred to remain anonymous due to the sensitive nature of the issue, told CNBC Tuesday that Greece's market return is "most likely next week as the Greeks seem to prefer to wait for the IMF's EB (International Monetary Fund Executive Board) meeting on Thursday and for (credit rating agency) S&P to make announcements regarding Greece's debt rating on Friday."

Greek Finance Minister Euclid Tsakalotos attends a eurozone finance ministers meeting in Brussels, Belgium May 22, 2017.
Francois Lenoir | Reuters
Greek Finance Minister Euclid Tsakalotos attends a eurozone finance ministers meeting in Brussels, Belgium May 22, 2017.

Members of the IMF's executive board are due to meet Thursday to discuss issues related to the Greek bailout, including the sustainability of its debt. The Fund's opinion on the Greek bailout is crucial given that it's promised to contribute to the financial rescue, although it hasn't yet said by how much. The IMF has also been a vocal supporter of making Greece's debt more sustainable.

Rating agencies also have an influence on how global investors react to a Greek bond issuance. The S&P confirmed to CNBC that it's going to discuss the situation of Greece on Friday but for regulatory reasons it cannot unveil whether there will be a rating upgrade.

Last week, Moody's noted that credit metrics have improved for Greece with economic growth and public finances on a more sustainable path. "The recent upgrade and positive outlook on Greece's sovereign rating reflect our view that the prospects for a successful conclusion of Greece's third adjustment program have improved," Kathrin Muehlbronner, senior vice president at Moody's, said in a statement.

Greek bonds rallied to post-crisis levels this week as investors have become more confident on the economy and the prospects of a market return.

"There are basically two reasons for this," Jan Randolph, director of IHS Markit sovereign risk rating, told CNBC Tuesday about the recent fall in yields. Bond yields move inversely to prices.

"Greece has been performing better than to plan, with the fiscal adjustment stronger than expected … This together with some resumption of modest growth is expected to turn debt dynamics positive; with many rating agencies (including IHS Markit) moving Greece's sovereign ratings slowly away from a possible default scenario."

He added: "Secondly, Greece has secured another bailout program extension in June, with IMF involvement despite difference with other euro zone partners on the nature and degree of debt relief."

Last June, the euro zone agreed to disburse a tranche of 8.5 billion euros ($9.2 billion) which allows the country to comply with summer payments. The Greek debt agency wasn't available for comment when contacted by CNBC.

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