Effects of possible exclusion from the APP

A temporary rise of Greek spreads, a front-heavy borrowing strategy by the Public Debt Management Agency (PDMA) and the strengthening of Greece’s strategic moves for achieving investment grade as early as possible; these are the likely consequences in case the scenario about the European Central Bank not including Greece in its regular bond-buying program (APP) proves correct.

That may happen after the end of the first quarter, when the emergency bond-buying program (PEPP) comes to its end.

According to Societe Generale: “Greece is likely to issue [new bonds] in the first quarter to benefit from PEPP purchases, supporting Greek government bonds. Since March 2020, the ECB has bought around 34 billion euros of Greek bonds and bills under the PEPP, which has been supportive for Greek debt. If Greek bonds are no longer bought, there could be some volatility. As a result, Greece will likely try to issue a significant portion of its funding program in the first quarter of 2022 to increase the liquidity of its bonds and support spreads.

There are different perspectives to the consequences of that, says Sebastian Fellechner, a DZ Bank analyst covering Greece: “As far as the fixed income or economic analysis is concerned, then a ‘flow effect’ on Greek bonds disappears, but still a ‘stock effect’ will be in place, which means that the ECB keeps the holdings of Greek bonds.”

He also notes that, “so far, Greece’s strategy to become a ‘normal sovereign issuer’ like other eurozone countries is on track. Of course, this is a long-term project. Through the cash buffer Greece doesn’t really need to appear at the primary markets, but nonetheless the PDMA remains active – a good sign. I think that spreads will be higher in the upcoming year, but that’s also true for the whole eurozone sovereign bond segment.”

Of course Greece is no longer far from attaining investment grade. As Dennis Shen, Sovereign and Public Sector director at Scope Ratings, points out to Kathimerini, “the trajectory of fiscal performance and sustainability of the current drop in Greece’s debt ratio are central to its credit ratings. Today, Greece rests one notch removed from a return to an investment-grade credit rating,” he stresses.