Bonds to keep performing well after PEPP

Greece’s front-heavy bond issue program makes sense, as it capitalizes on the major support of the European Central Bank’s extraordinary bond-purchase program (PEPP), but even after that its credit rating will not suffer, analysts have told Kathimerini.

“The termination of the PEPP or, even more generally, tapering of government debt purchases by the ECB is per se not a negative rating factor,” says Marko Mrsnik, European Sovereign Ratings director at Standard & Poor’s.

“In light of the ECB’s likely prolonged and slow exit from the programs of public asset purchases, we anticipate that the ongoing decline in the average interest rate on government debt outstanding is unlikely to reverse soon, despite potential occasional volatility arising from sovereign-specific issues. That’s because – besides the lengthening of average maturities on outstanding debt – the sovereigns will continue to be financing themselves at lower interest rates than some years ago,” he says.

Mrsnik also recalls that “past episodes of ECB tapering few years ago didn’t have negative impact on the borrowing conditions of the sovereigns – for example, Cyprus and Portugal. Tapering in both cases occurred against the background of solid economic performance and budgetary consolidation following a substantial restructuring of their economies. Regardless of the possibility of policy decisions with respect to the eligibility in the ECB’s QE schemes, it is worth emphasizing that Greece benefits from an extremely favorable debt profile and very substantial fiscal buffer.”

Alex Muscatelli, Sovereign Group director at Fitch Ratings, agrees: “The end of PEPP would not on its own bring about downward pressure on the rating, but it would, other things equal, probably mean higher borrowing costs for Greek debt – borrowing costs are currently very low for Greece in comparison to its rating peers.”

“Moreover, while March 2022 is expected to be the date for the end of new purchases of debt, the ECB has also said that maturing bonds purchased under the PEPP will be reinvested until at least the end of 2023, and that in any case, the roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary stance. This would mitigate the impact of a sudden stop in bond buying,” he says.