Greece’s 10-year borrowing costs hit their lowest in 12 years on Friday, benefiting from expectations of an exit from its bailout this year, underpinned by risk appetite and a tentative economic recovery.
Greece and its creditors in the eurozone reached a preliminary deal last month that paves the way for the country to exit the latest rescue package – its third since 2010 – in August.
That would cap a slowly strengthening recovery eight years after it was on the verge of defaulting on its debt and risked being kicked out of the single currency bloc.
Last year the country returned to bond markets, raising hopes that it can again become financially independent.
“Greece’s fundamentals have been on the mend and investors have been looking at the yield pick-up they get from investing in that debt,” said DZ Bank strategist Christian Lenk.
“Also, a rising tide lifts all boats – with the eurozone economy doing so well, it’s a very ‘risk on’ environment and that is benefiting Greece.”
Greek manufacturing activity kept expanding in December as new orders grew at the fastest pace in over nine years, leading firms to increase hiring and production, a survey showed on Tuesday.
Having been among the best performing government bond assets in the eurozone in 2017, the yield on 10-year Greek government bonds dropped to its lowest level since February 2006 at 3.78 percent on Friday.
Short-dated Greek debt yields were also at multi-year lows: the country’s two-year borrowing costs fell to 1.44 percent and is now lower than the equivalent US Treasury yield.
But despite that vote of confidence, engineering a clean bailout break remains a challenge.
“The fact that EU creditors still hold over 80 percent of (Greek) debt will mean that they insist on continued austerity and reforms,” said Jennifer McKeown, an chief European economist at Capital Economics.
“These conditions will be very difficult for Greece to meet as the electorate struggles with high unemployment … perhaps leading to a replay of the 2015 referendum (on bailout conditions).” A messy default and eurozone exit could still not be ruled out, she said.