Greek bonds rallied strongly on Tuesday, with yields for most of them, irrespective of duration, dropping to historic lows.
The yield of 10-year Treasury bond dropped for the first time below 1.9 percent, finally settling at 1.826 percent, 13 basis points or 7 percent lower than Monday. The 5-year bond also ended at an all-time low yield of 1.082 percent, a 7.8 percent drop, and the new 7-year bond ended at 1.56 percent.
The rally was sparked by the government sweeping away the final banking restrictions from the capital controls imposed in June 2015, when Greece stood on the precipice of a potentially catastrophic eurozone exit.
When issued in March, the 10-year bond was yielding 3.9 percent; the 5-year bond was issued in January with a 3.6 percent yield, and the 7-year bond, issued in July, was yielding 1.9 percent. Most of the drop in the yields has taken place after the European election of May 23, in which New Democracy scored a clear victory over then ruling SYRIZA, precipitating an early national election on July 7.
Analysts told Kathimerini that the yields should continue to drop, in part because of the European Central Bank’s easing on its monetary policy. The end of the capital controls is also expected to lead to an upgrade of Greece’s debt rating, further strengthening investor interest in bonds.
Greek bonds also benefited from a positive climate in European bond markets, because of hopes that Italy will get a new government. Italian, Irish and Portuguese bonds all dropped significantly.
Analyst Capital Economics believes that the Greek bond rally will continue for several months. The European Central Bank’s quantitative easing will begin in November, providing a further boost, despite the fact Greece, whose debt rating is below investment grade, will not take part.
The 10-year bond’s yield could reverse its decline if there are tensions with the creditors in October in discussions over the 2020 budget. Still, Capital Economics believes that the yield will stand at 1.75 percent at the end of the year.