(Updates with more quotes, detail)
By Jamie McGeever
LONDON, March 4 (Reuters) - The rising premium investors demand to hold Greek government bonds over benchmark German paper is unjustified and purely a function of volatile capital markets, the head of the country's public debt management agency (PDMA) said on Wednesday.
That spread should narrow, as Greek and other non-German euro zone sovereign paper are currently at attractive levels to investors, Spyros Papanicolaou, head of the Public Debt Management Agency, told Reuters.
"Nothing has happened to justify that widening," Papanicolaou said in a telephone interview after Greece syndicated a new 7.5 billion euro benchmark sovereign 10-year bond.
Papanicolaou said the syndication showed that Greece has no problem raising funds on the capital markets.
Papanicolaou said he was "extremely pleased" with the syndication, noting the price at the tighter end of guidance at mid-swaps plus 265 basis points and that the order book totalled 11.7 billion euros.
But he was less thrilled that Greece had to pay such a hefty rate to raise the funds.
"We are not pleased about the price we have to pay, but this is simply a reflection of market conditions. I expect those spreads to tighten in the coming weeks," Papanicolaou said, adding, "Sovereign credits are still quite attractive."
The Greek/German 10-year spread widened to over 300 basis points in January, in part fuelled by a one-notch downgrade to Greece's sovereign credit rating by Standard & Poor's.
The spread had tightened to 220 basis points in early February only to hit a new record high above 305 basis points later in the month. In the last two weeks it has tightened to 230 basis points and on Wednesday reached 270 basis points.
"It's so volatile," he said, noting that no developments in either the domestic or broader euro zone economy in the last few weeks can reasonably explain the moves.
He said he "definitely" does not expect any further downgrade to the country's sovereign credit rating, after S&P's move earlier this year. Papanicolaou repeated government figures that show total Greek borrowing needs this year are still around 44 billion euros.
Greece expects that its public debt, one of the highest in the euro zone as a percentage of GDP, to rise this year as the government's 28 billion euro liquidity support package to keep the economy adequately funded will weigh.
Finance minister Ioannis Papathanassiou said last month he expects public debt to rise to 96.3 percent of gross domestic product from 94.6 percent in 2008.
Any change in the maturity profile of borrowing on the capital markets will depend on market conditions, Papanicolaou said.
The PDMA is comfortable with the current tendency to borrow up to 10 years out, although if there is sufficient investor demand for longer-dated paper then that would be considered, he said.
To gauge broader investor appetite, the PDMA will take a roadshow to the United States and Asia some time later in the Spring, in April or May, he said.
(Editing by Ron Askew)