Debt-stricken Greece won little respite from crippling borrowing costs when it returned to capital markets on Monday for the first time since euro zone leaders agreed to give it a last-resort financial safety net.
A 7-year, 5 billion euro ($6.72 billion) benchmark bond issue was a first test of market confidence after the 16-nation currency area decided last week on a fuzzy European-IMF support mechanism to be used in dire emergencies only.
It drew significantly less demand than two previous heavily oversubscribed Greek 10-year bonds, partly due to the shorter maturity and thin Easter market but also because of expectations that Greek bond yields are not about to fall.
We are pleased to have had a successful 5 billion euro transaction in a maturity that is not plain vanilla, Greece's debt agency chief, Petros Christodoulou, told Reuters.
The bond carried a coupon of 5.9 percent -- more than twice what Germany, Europe's biggest economy and most trusted issuer, pays on 7-year paper.
Analysts said the rate had barely eased since Greece issued a longer 10-year bond on March 11, while euro zone partners were still wrangling over whether to help Athens at all.
However, it might have been higher still had euro zone leaders failed to reach any decision last week. The euro gained ground further against major currencies on Monday after the agreement relieved fears of a deeper crisis.
The (euro zone) statement was positive for Greece' credit profile by enhancing its near-term financing options and flexibility as well as reaffirming the support of euro area member states for economic and fiscal reform in Greece, Fitch Ratings agency said in a statement.
But Fitch kept its negative outlook on Athens' credit rating because of uncertainty over the medium-term fiscal adjustment and lack of clarity over the fiscal financing strategy.
Greece needs to finance some 23 billion euros in maturing debt by end May, some of which may be met from cash reserves. The premium investors charge for holding Greek bonds rather than German Bunds widened to 318 basis points at one point on Monday.
Officials have said such levels would be unsustainable for state finances in the long run.
The head of the International Monetary Fund, which has said little since it was assigned a subordinate role in any rescue, said on Monday there was no immediate sign that Greece would need outside help.
The conspicuous silence from Washington since the Europeans agreed to seek its involvement had prompted speculation that the IMF either did not know what role it is supposed to play or was unhappy at being expected to provide funds but not set policy.
Asked if the IMF knew what its role would be, Managing Director Dominique Strauss-Kahn said certainly, adding: We are always in perfect harmony with the EU.
We will move and we will say something only when Greece asks us, he told Reuters in an interview on a visit to Poland.
He also said the crisis over Greece's deficit and debt had exposed weaknesses within the single currency zone, showing that economic leadership in the EU is not strong enough and better coordination was urgently needed.
Under a compromise brokered by euro co-founders Germany and France last Thursday, Greece would qualify for assistance only if it were unable to borrow on the markets, and a unanimous euro zone decision would be required to trigger a rescue.
Euro zone states would provide the majority, some said two-thirds, of help in coordinated bilateral loans, on strict conditions proposed by the European Commission and the European Central Bank, while the IMF would provide the rest.
However, many key details remain to be spelled out, including the cost of emergency loans, what precise role the IMF would play and what would happen to its normal conditionality.
Greek officials have said that if Athens has to borrow its total requirement of 53 billion euros this year at current market rates, it would cost at least an extra 500 million euros a year in debt service charges.
That would make it even harder for the government to achieve a promised 4 percentage point cut in the budget deficit to 8.7 percent of gross domestic product this year and get the shortfall below the EU limit of 3 percent by the end of 2012.
Beyond 2010 our economists are concerned that Greece remains on a sustainable debt trajectory, said Ciaran O'Hagan, bond strategist at Societe Generale in Paris.
Debt service costs will continue to rise unless yields decline significantly. At the very least this suggests that the current target to reduce the deficit to 3 percent in three years is unrealistic. So we'll face today's concerns next year and the year after, he added.
The Economist magazine calculated Greece would not reach the deficit target until 2014, by which time its debt to GDP ratio would have topped 150 percent, compared to 110 percent in 2009.
(additional reporting by Crispian Balmer in Warsaw; writing by Paul Taylor; Editing by Mike Peacock, Ron Askew)