QE and ECB waiver could be catalysts Greek bonds require

Maintaining the eligibility of Greek bonds as collateral for European Central Bank liquidity and their inclusion in the ECB’s bond-buying program (QE) would be an important catalyst for the improvement of the Greek bond market and investors’ attitude toward Greece, market insiders stress.

On Monday ECB chief Mario Draghi said a fresh debt sustainability analysis is needed before the country’s bonds enter the QE.

If Frankfurt includes Greek bonds in its quantitative easing program or its reinvestment program, after the recent credit rating upgrades, then all Greek paper – particularly the benchmark 10-year bond – would register significant gains, the head of Global Macro Strategies at Algebris, Alberto Gallo, told Kathimerini.

Analysts say there is a small window for inclusion in the QE program, even though things are not so easy. Morgan Stanley estimates that after Eurogroup’s debt-easing decision on June 22 the Greek debt may find itself on a declining course, opening a window of opportunity for the ECB to include it in its bond-buying program. Yet this window may be particularly small, as after the end of the bailout program next month eligibility appears unlikely given the so-called clean exit, and the assessment of the economy below investment grade.

Barclays also discerns a small margin for Greece’s inclusion in QE, and the decision would have to be made at the ECB council meeting on July 26, with the purchase of Greek bonds coming to 1.6 billion euros if they start in August and continue until the end of the year. However, it notes, this is a very narrow timeframe.

The key question is whether the ECB will retain Greece’s waiver from the rule of non-eligibility of junk-rated bonds for their use as collateral for cheap cash flow. This will happen if Frankfurt considers the post-bailout surveillance status of the country as a proper program. Citi says the improved debt picture combined with the Eurogroup decision will allow the ECB to extend the waiver and examine the QE inclusion, albeit for a short period.

HSBC analysts appear less optimistic, arguing that the inclusion of Greece in the QE program remains particularly unlikely due to the desire of the Greek government to have a “clean exit” instead of a precautionary credit line, which would have also maintained the ECB waiver.