Pimco will not be buying new Greek debt as it believes a euro zone rescue package fails to tackle the country's longer-term solvency challenges, the chief executive of the bond fund told Reuters.
Sunday's euro zone agreement for a 30 billion euro ($40 billion) loan plan addresses short-term liquidity issues but does not take on Greece's fundamental crisis, Pacific Investment Management Co. (Pimco) Chief Executive and Co-chief Investment Officer Mohamed El-Erian said on Monday.
Markets have signaled that Greece faces both refinancing, or liquidity challenges, as well as stock of debt, or solvency challenges, El-Erian said in an interview.
Based on what we know right now, we would not be a buyer, El-Erian later told Reuters Insider television when asked about upcoming Greek debt offerings.
Greece needs to borrow about 11 billion euros by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is 53 billion euros.
On Tuesday, the government will seek 1.2 billion euros from the sale of six-month and 12-month Treasury bills, which are expected to do well because of their short maturities. A more significant hurdle could come when government officials go on the road in April to test U.S. investor interest in a planned dollar-denominated bond valued at up to $10 billion.
The rescue package agreed among euro zone finance ministers and supplemented by the International Monetary Fund will offer loans at about 5 percent interest. That's much lower than the 7.5 percent rate world markets were demanding last week, though not as low as Greece had wanted.
When combined with subordination and debt seniority issues, the terms of this weekend's announcement set a still too high floor for Greek interest rates given debt sustainability worries, El-Erian said.
Market enthusiasm for the rescue package faded on Monday because of these factors, he said .
Intra-European operational and coordination challenges remain too, he said. As an example, the disbursement of the EU aid requires individual decisions by EU member states, which will face both popularity and legal questioning.
The enthusiasm of European countries to provide overall support is muted by Greece's history of overconsumption, moral hazard concerns, and the lack of popular EU-wide support for bailouts, El-Erian added.
We are very cautious toward Greece and we are in a 'wait and see' attitude and we would like to see greater evidence of adjustment on Greece, El-Erian said.
(Reporting by Jennifer Ablan; Editing by Andrew Hay)