The yield on the Greek benchmark 10-year bond dropped below 1 percent for the first time ever on Wednesday, on a day when other bond markets were quite mixed. Piraeus Bank benefited immediately from the yield slide with a very successful bond issue on Wednesday.
All this means that Greece constitutes a risk-free investment for funds and is rated much more highly by the markets than by the rating agencies.
“The constant slide of the interest rate and its maintenance at a low level illustrate the confidence of the markets in the course and the prospects of the Greek economy, as well as the economic policy of the government,” Finance Minister Christos Staikouras commented.
The yield on Greece’s 10-year bond dropped on Wednesday by 7.5 percent to end up at 0.956 percentage points, while the spread with the German bund reached a 10-year low of just 133 basis points. The five-year bond yield dropped 15 percent to 0.307 percentage points and the new 15-year paper’s yield eased to 1.54 percent.
The current rally is attributed to the fact that investors are trying to position themselves before the further improvement that Greek paper is expected to record ahead of more credit rating upgrades and their joining the European Central Bank’s bond-buying program, known as quantitative easing (QE).
“The reason for the rally is quite simple,” says Danske Bank analyst Jens Peter Sorensen: “It is the fear of missing the train of the further improvement,” he argues, noting that the returns on Greek bonds are impressive.
Piraeus Bank capitalized on the favorable climate for Greek state bonds, as its Tier II 10-year bond issue on Wednesday saw it raise 500 million euros at a favorable interest rate of 5.5 percent, far below the rate of the lender’s previous issue last June, which stood at 9.75 percent. The issue was oversubscribed more than eight times, leading to the reduction of the interest rate from the guidance of 6 percent.