Crisis creating an opportunity for bonds
The current environment constitutes a golden opportunity for Greek government bonds (GGBs), as the safety net they have been granted by the timely intervention by European and Greek authorities is opening up new horizons for investors.
“Obviously, the fact that PEPP is actively buying GGBs makes the crisis seem like an opportunity for GGBs since it would have taken a lot of time for Greece to be upgraded to the level of becoming PSPP-eligible. But this is known since March, hence it can’t explain the recent uptick in secondary market activity,” argues Ioannis Sokos, fixed income research director at Deutsche Bank.
“The fact that Italy has erased the entire Covid-related widening in terms of spreads versus Germany could be one valid reason, as investors are looking for ways to pick up extra yield now that the Italian bonds’ correction seems complete. Also, we shouldn’t forget that Greece is among the countries that will benefit the most from the EU recovery fund and the allocation of grants,” he points out.
“There are many reasons why GGBs have been doing well during the crisis. It’s a bit more difficult to pinpoint why market activity picked up in the last month. So, the extra argument I was offered by our trader is that as spreads have compressed, the liquidity of GGBs has improved dramatically. Before, they used to trade mainly via brokers, while now it’s mostly on the online secondary market,” says Sokos.
Jens Peter Sorensen, chief analyst at Danske Bank, tells Kathimerini that Greece is getting closer to a more normal market status, but will need to get investment grade to achieve it. “I still think that Greece needs the upgrade into IG-territory (BBB-) and be included in the indices before it is a ‘normal’ market, but investors have seen that then it is to late to buy – and guess this is why secondary trading is picking up now,” he notes.
“One of the main drivers has been the QE; I would imagine it would impact the secondary trading data – but with confidence that ECB is buying then asset managers etc. can trade more ‘freely’ as they do have a buyer (ECB) – otherwise the QE program has not been good for liquidity in the smaller markets such as covered bonds and corporate bonds,” he comments.
