The current environment is the most favorable in several years for the Greek state for funding from the markets, analysts say, thanks to the strong rally of state bonds, the high investor demand, the return of major and quality portfolios to Greek issues and the upgraded mood about Greece. Therefore Athens has already started contacts for new bond issues.
DZ Bank analyst Daniel Lenz notes to Kathimerini that the Greek bond rally may be fueled by several drivers: “They are the hunt for yield, with investors desperately looking for investments with a positive yield. Due to the coronavirus government bond yields have dropped which limits the number of issuers which still offer a positive yield; the positive developments in Greece, as the new government is more committed to economic reforms and has stressed that it will stick to fiscal austerity. Greece's ratings have already improved and investors seem to regain trust in Greek bonds; and the comparison to Italy, since an increasing number of investors think that Greek bonds offer a better risk/return ratio than [Italy’s] BTPs,” says Lenz.
All this sustains a very favorable climate for new market forays by Athens. Proposals on the table at the moment concern a new seven-year issue, a new 10-year one and the reopening of the recently issued 15-year bond. A new three-year paper cannot be ruled out, that could attain an interest rate as low as zero, sending a strong message to investors.
As for the duration of this rally, Lenz says Greek bond yields are driven by Bund yields as well as spread developments: “The 10-year Greek bond spread has already increased significantly. Further spread tightening seems possible depending on the market environment and the news flow from Greece, however investors will always demand some risk premium for lower rated issuers.”
He adds that “the further development of Bund yields may in the short term depend how the market assess the risks for the global economy that might arise from coronavirus. Only if the disease spreads further and recession fears rise we would expect Bund yields to drop significantly toward last year's lows.”
“For longer Greek bond maturities I would not expect their yield to drop below zero any time soon. It's of course different when we talk about three-year maturities. The yield has dropped to eight basis points already and could fall below zero within days,” concludes the DZ Bank analyst.