The continuing rally in Greek sovereign bond prices presents Athens with a fresh opportunity for a new market foray.
The yield of the benchmark 10-year bond broke the 1% barrier on Friday for the first time since the outbreak of the coronavirus pandemic to reach 0.98% – i.e. mighty close to the historic low of 0.94% recorded in February. At the same time the yields on the seven-year and 15-year bonds dived to all-time lows of 0.64% and 1.12% respectively.
The swing of investors to the bond market and away from risks such as stocks – triggered by the news of US President Donald Trump contracting Covid-19, which increases the uncertainty ahead of November’s presidential election – sent most eurozone bond prices soaring on Friday. In this context Greek debt appears particularly attractive to investors, as it offers the highest yields in the region, especially in an environment where the bond basket is full of issues with negative yields.
Greek bonds also enjoy some very significant advantages, such as support from the European Central bank’s bond-buying program, the very high cash reserves of the Greek state (37.7 billion euros), and the very favorable profile of the national debt. All this ensures a particularly important safety net for investors, who also bank on the resumption of credit rating upgrades for the Greek economy after the pandemic.
According to the analysts, these conditions offer Greece the opportunity to tap the bond markets again this year, even if it has already covered its borrowing program for 2020. Danske Bank estimates that Greece will soon proceed to a new bond issue of €2.5 billion.
After all, the Greek bond purchases that the ECB implements through the emergency quantitative easing program (PEPP) have covered all Greek issues this year (Frankfurt has acquired more than €11 billion of Greek bonds, while Athens has issued bonds worth €10 billion).
Furthermore, given the fact that the PEPP will run until at least June 2021, with a serious possibility of it being extended – or expanded in scope – the ECB is expected to cover a large part of the rest of the Greek issues until next year too.