MARKETS

Greek spread declines to 13-year low

greek-spread-declines-to-13-year-low

Although the two sell-offs that have struck the bonds market in the eurozone since the start of this year have put upward pressure on the yields of Greek bonds too, they have also led to the reduction of the distance between the interest rates of the Greek and the German debt, known as the spread.

That effect is due to the growth of the Greek yields in the last few months being smaller than that of the German bund yields, thereby resulting in a significant narrowing in the spread that for the benchmark 10-year bond comes to just 102 basis points – the lowest since 2008.

The spreads are the most reliable index regarding the status of a country’s bonds, as they practically reveal how investors assess each state’s debt and the relative risk compared to that of other countries, such as that of a safe country like Germany.

Although the Greek debt-to-gross domestic product ratio is above 200%, the Greek debt profile is considered absolutely favorable by the market, which points to its sustainability, at a time when the Greek cash reserves and support from the European Central Bank’s bond-buying confirm it runs no funding risks.