‘Success story’ seen continuing
Markets expect more economic recovery and a return to investment grade after the elections
The continuation of the economic recovery and Greece’s return to investment grade after almost 13 years is what markets expect after the elections.
The impressive performances of the Athens Stock Exchange and Greek bonds since the beginning of the year, and especially since the first election, show that investors consider Greece a success story, but that depends on political stability and the existence of a strong government that will follow the pro-reform and pro-investment policies that have led the country to outperform most other eurozone economies.
The general index of the Athens Stock Exchange is recording the highest gains internationally since the beginning of the year, at +36%, far behind the second-best performing market – which is the US Nasdaq technology index (+30%). In the last month, and after the May 21 election, the increase has exceeded 12%.
Greek bonds are the eurozone performance stars, with the 10-year yield at 3.57% beating the corresponding Italian yield for months (4% on Friday) and chasing Spain and Portugal, where the returns are 3.3% and 3.1% respectively.
“The spread of Greek bonds against Spanish bonds has fallen this year to the levels before the eurozone crisis,” observes Athanasios Vamvakidis, director and global head of investments in G10 foreign exchange markets at Bank of America. “This is due to the strong recovery of the Greek economy, the market’s expectations for investment grade and the overperformance of fiscal targets. The Greek debt remains much higher than that of Spain, but it has a much longer maturity and is decreasing quickly,” as he explains to Kathimerini: “We don’t necessarily expect Greek yields to match Spain’s, but the spread could narrow further if the Greek economy continues to outperform. In theory we see no fundamental reason for the spread not to be zero, but in practice the issue of liquidity may keep it above zero.”
As market players observe, Greek bonds are performing much better than the bonds of eurozone countries with investment grade.
