Bonds hit 16-month high
Yields tumble while markets expect Greek enterprises to return to international indexes
Greek bonds outperformed their eurozone counterparts considerably on Monday, with the 5-year Greek note even matching Spanish paper, having received a boost from Greece’s upgrade by Fitch Ratings on Friday night.
That is because, apart from the fact that Fitch is the fourth rating agency – out of the five recognized by the European Central Bank – to reposition Greece as investment grade (low, “BBB-”), the door for inclusion is simultaneously opened to Greek bonds in most international indexes for the first time since the debt crisis of the 2010s.
This will mean the strengthening of inflows into Greek bonds, which will however become even more intense when Moody’s follows Fitch, Standard & Poor’s, DBRS Morningstar and Scope Ratings, as it is the only agency that still rates the country at “junk” level. It is worth noting that Moody’s and S&P have the lion’s share of the market and therefore the largest “clientele,” as each accounts for 40% of ratings internationally.
The yield on 10-year Greek bonds plunged 3.5% on Monday to 3.51 percentage points, the lowest since August 2022, as other countries’ yields saw their yields rise slightly. The Greek paper is now just 59 basis points behind its French equivalent, 50 bp from the Portuguese and about 15 bp from Spain’s, while continuing to trade firmly below Italian yields at all maturities. In addition, the yield of 5-year Greek bonds is on a par with its Spanish peer, at 2.92%.
It is noted that the spread of Greece against Germany is at 116 bp, having recorded a drop of 119 bp since the beginning of the year, the best performance in the eurozone.
Fitch’s move paves the way for Greek bonds to be included as of January in international indexes such as iBoxx, Bloomberg Barclays Euro Sovereign indices and the FTSE’s Eurozone Government Broad IG. According to banking sources, the eligibility of Greek bonds will automatically lead to inflows of 6-10 billion euros, which is roughly what the issuing activity of the Greek state will be next year (€7-10 billion).
