Greek bond yields hit historic lows

The strong rally recorded by Greek bonds in the last few weeks continued on Wednesday with the yield of the benchmark 10-year paper dropping to a new historic low, just above 2 percentage points. This was thanks to the push from the candidacy of Christine Lagarde for the chair of the European Central Bank, which led many sovereign bond yields in the eurozone to record lows.

Greek securities, including local stocks, have also benefited from the prospect of a political shift after Sunday’s election that traders have long taken for granted. As Eurasia Group noted in a new report on Wednesday, the outright majority of New Democracy – which it considers highly likely – will constitute a positive signal for the markets, as ND leader Kyriakos Mitsotakis has pledged to cut taxes, improve the business environment to attract foreign investments, and speed up the restructuring of the credit system, as opposed to the narrow focus of SYRIZA on social expenditure.

The yield of the Greek 10-year bond fell to 2.055 percentage points yesterday, down 6.6 percent on a daily basis, while the spread against the German bund dropped to 244 basis points, the lowest since January 2010. The drop in the five-year bond yield was even steeper, falling 13.7 percent on Wednesday to a new historic low of 1.037 percentage points.

The decline of the Greek state’s cost of borrowing since January has been quite impressive, as the 10-year note has fallen by about 50 percent, from 3.9 percentage points at the start of the year. Most of that slide has happened since the May 26 European election, after which the benchmark yield has lost 137 bps.

There was also an impressive drop in the yields of the six-month treasury bills the Public Debt Management Agency auctioned on Wednesday, also to a historic low of 0.23 percentage points, from 0.41 percent in the previous such auction, while market sources said the participation of foreign investors was significantly increased.