Bond spread declines to levels unseen in the last three years

The spread between the yield of the Greek benchmark 10-year bond and the 10-year German bund declined on Tuesday to levels unseen in the last three years, while for the first time since the start of the crisis Greece has dropped to sixth place on a chart of countries most likely to default in the next five years.

In the last few days the Greek bond market has been having a good spell, with the spread and the yields going down and the prices going up. The change in the atmosphere is mostly attributed to the news about the primary surplus (which if confirmed will lead to measures for the lightening of the debt), the better course of gross domestic product and the shrinking of the recession.

A recent visit by Prime Minister Antonis Samaras to the US also played its part, according to market sources.

In that context the spread has gone down to 667 basis points. The last time it was at that level it was on October 14, 2010 (at 666 b.p.). Bond prices, meanwhile, grew to 63.3 percent of their nominal price, a level last seen in May, when the market also recorded a mini-rally. Before May, that kind of level had been last achieved in April 2011. The yield of the bonds fell yesterday to 8.5 percent, which is the lowest seen since June 2010 (at 8.44 percent).

Another bit of good news was Greece’s drop to sixth place on the default likelihood chart, according to data by S&P Capital IQ CDS. The possibility of Greece going bankrupt in the next five years stands at 44.5 percent.

In the last assessment Greece had ranked fourth, after a long period during which it was by far the chart leader. Argentina currently tops the chart with a 77.8 percent likelihood of defaulting.