Investment grade by April?
Analysts are split on when Greece may return to investment grade, in what is seen as a difficult year for the eurozone bond market due to the ECB’s aggressive stance, while the national elections are firmly on investors’ radars.
Societe Generale shares the optimism recently shown by Goldman Sachs and estimates that investment grade is likely this spring, even before the election, while JP Morgan remains cautious on seeing that milestone reached in late 2023 or early 2024. Both investment banks, however, expect the Public Debt Management Agency to move forward with its borrowing strategy this year, debuting a new 10-year bond in markets this month.
Societe Generale keeps the Greek bond market – instead of Italian bonds – among its top investment targets for 2023 and sees as very likely that S&P will surprise the markets by giving Greece investment grade on April 21. Greek paper, it notes, continues to offer a good risk-reward profile, so it still recommends buying 10-year Greek bonds over the Italian ones.
According to the French bank, Fitch, the first to offer a verdict on Greece’s ratings for 2023, will upgrade the country on January 27 to BB+ with a stable outlook, one step before investment grade. There is also a reasonable possibility, it points out, that S&P will surprise the markets by upgrading Greece to investment grade even before the general elections.
For its part, JP Morgan estimates in a new report that rating actions by agencies will be limited this year, however low-rated countries will see further upgrades, with Greece returning to investment grade in late 2023 or early of 2024.
As it points out, upgrades could come from better-than-expected macroeconomic and fiscal performance, thanks also to supportive policies at the EU level, while downgrade risks could be linked to possible stronger macroeconomic shocks or unforeseen political risks.
The US bank emphasizes that it remains broadly bullish on Greek bonds and predicts that their yields will move steadily to slightly lower than Italian bond yields until the end of 2023.
