Cost of borrowing has gone down by 170 bp

A reduction in the cost of borrowing by 1.7 percentage points has been achieved thanks to the upgrades to Greece’s credit rating by rating agencies during the last four years. 

However, although the recovery of investment grade is expected to lead to a further improvement in Greek bonds, the additional benefit will be much more modest, as this positive development has already been largely priced in by the market. 

In particular, as the Bank of Greece explained in its monetary policy report, bond yields are linked to their credit rating. 

Therefore, the upgrades of the Greek state’s credit rating from 2019 to the present, which is the period under review, are expected to have had an offsetting effect on interest rate increases: While the tightening of monetary policy exerts an increasing effect, credit rating upgrades are expected to have a decreasing effect on the credit risk premium of Greek government bonds. 

The parameter related to credit risk is an important component of Greek bond yields: It is estimated that currently the credit risk associated with Greece’s low credit rating adds approximately 100 basis points to Greek government bond yields, while during 2019, on average, it is estimated that the credit risk added an additional 270 bp in sovereign bond yields.