It may be hard for the yields of the benchmark bonds to return to the all-time lows of 0.92 percent observed just a few months ago, but the recovery of the Greek debt over the rest of 2010 and in 2021 appears necessary, according to analysts.
Greece has two major weapons in this unprecedented crisis: the absolute support of the European Central Bank and a cash buffer that – if it remains robust till the end of the crisis – can safeguard the country’s continued access to the markets with manageable yields.
Greece is already one of the biggest winners of the ECB’s new bond-buying program – the Pandemic Emergency Purchase Program, or PEPP.
Greek bond yields have recorded the biggest drop since Frankfurt announced this extraordinary program on March 18: From the pre-PEPP level of 4.1 percentage points, Greek yields currently stand at 2.15 percentage points, i.e. 48 percent lower, while in other countries the benefit from this strong move by the ECB is much smaller or almost zero.
For instance, Cyprus’ 10-year bond yield is at exactly the same level as before PEPP (2.1 percent), while the improvement in Italian bonds amounts to 22 percent, as the yield of the 10-year note stands at 1.8 percent from 2.3 percent before March 18.
The reason Greece has so far benefited more than anyone else from the new quantitative easing program is that this country’s bonds did not participate in previous QE plans, unlike the other countries.
There is also another advantage for this country: Given that the ECB can buy Greek bonds worth up to 16 billion euros via PEPP (it has already acquired bonds worth €2 billion) and that Greece’s issuing needs this year amount to €8-9 billion, per market sources, Frankfurt can fully cover Greece’s borrowing needs for 2020, thereby supporting the market for the day after the pandemic too.
Greece also enjoys a cash buffer of almost €20 million euros; although it has started tapping it to support the economy, Athens also keeps replenishing it through the issues of treasury bills and bonds.
All this serves to explain why rating agencies have stopped short of cutting Greece’s credit rating and have only reduced its outlook to stable from positive.