Bond rally is well-founded

Greek bonds will continue to offer very good returns, as they have done in recent months, according to analysts who say the country’s debt has got what it takes to keep standing out in the battle of the bond markets and outperforming their eurozone peers.

Among the advantages of Greek bonds, analysts note, are local banks now being able to buy more with the cheap liquidity they get from the European Central Bank, Greece’s participation in the European Central Bank’s emergency bond-buying program, the prospects of the European Union’s recovery fund, the high cash reserves of the Greek state, and the possibility of Greece re-earning its credit rating upgrades.

According to DZ Bank, Greek bonds have benefited most from the acquisitions the ECB makes through its new QE program and estimates they will continue to do so. From the highs of last March, Greek spreads have dropped considerably, heading closer to the year-lows, while the whole Greek yield curve is negotiating at lower levels than its Italian counterpart, even though Greece is not classified as “investment grade.”

The yield of the new 10-year paper – issued at the start of this month with a 1.568% interest rate – has now tumbled to 1.26%, while the spread with the German bund is just 170 basis points. The cost of borrowing for the Greek state has therefore dropped 68% from mid-March, while the Italian 10-year bond yield stands at 1.37 percentage points.

Along with the favorable impact of the ECB, the Greek market is also benefiting from the successful handling of the pandemic by the Greek government, DZ Bank notes, while another factor that supports the country’s bonds is that, despite the abrupt recession projected for this year, the blow to the Greek economy will be smaller than in other European countries on the Mediterranean Sea. The lender estimates that the recovery signs have already started following the revival of the economy and tourism.