Greek state bonds continue to outperform

Greek state bonds continue to outperform

Greek bonds continue to outperform and break one record after another, despite the current deterioration of the economy due to the crisis from the coronavirus pandemic. Investors have affirmed their confidence in Greece’s long-term prospects and are making the most of the benefits that Greek securities offer.

The yield on the Greek five-year bond dropped on Wednesday to a historic low of 0.217 percentage points, down 11% from Monday, while there was a significant decline in the 10-year yield to 1.057 percentage points, down more than 3%. The spread of the benchmark bond against that of German bund shrank to 155 basis points, having declined by 300 bps in the last six months.

Analysts say the pursuit of Greek yields is no coincidence, with investors expressing strong interest through their emphatic participation in this year’s four bond issues and via the transaction volume in the Greek secondary market, which has reached a six-year high: Since the start of the year it has come to 9.8 billion euros, while in the whole of 2019 turnover had added up to €8.5 billion. Analysts say 2020 will be the best year in bond market turnover since 2010.

Société Générale argues there is still a considerable margin for the reduction of the spreads of Euro periphery bonds, including Greek ones, given also the absence of any fears of sovereign credit rating downgrades in the European South for some time to come.

Alpha Bank identifies four reasons supporting the further drop in yields: the resilience of the Greek economy against the recession shock in 2020 and 2021, the active support by the European Central Bank with the acquisition of Greek bonds in the context of the new QE (PEPP), the more favorable profile of the national debt, and the robust impact on the economy – with multiple benefits – in the next six years from the absorption of the resources from the Next Generation EU fund and the European Union subsidies for the 2021-2027 funding period.

Alpha adds that the yield drop and QE participation will offer additional flexibility for funding the economy and support the effort to maintain the cost of servicing the public debt at low levels. An extra factor may be an agreement between Athens and its creditors on the Greek recovery blueprint.