Greek bonds are already trading as though the country has regained investment grade, bank analysts that deal with Greek government debt told Reuters on Friday, with the news agency reporting that investors consider Greece’s return to investment-grade credit ratings “a done deal”.
“Investors are hopeful that the New Democracy Party – the clear winner in Sunday’s election though it fell short of an outright majority – will stay in power after a repeat vote in June and continue reforms, paving the way for Greece to reclaim the ratings,” Reuters said.
According analysts, “after this week’s sharp drop in borrowing costs, the bonds were already trading like investment-grade paper,” while Reuters notes that Greek 10-year bond yields around 3.9 pct “are now trading about 50 bps below Italy’s”, which “has investment-grade credit ratings from three big ratings agencies”.
“Greek 10-year bond yields have fallen nearly 15 basis points (bps) following Sunday’s election result.
The additional yield or spread Greek bonds pay over safe-haven Germany – which reflects their risk premium – is at its lowest since 2021,” Reuters reported.
It also noted that “Since its bailout programme ended in 2018, Greece has regained market access, wrestled down its record public debt and growth is set to continue outpacing the European Union average this year and next.”
“A return to the much-coveted investment grade would be more than symbolic for the country. It would make Greek debt eligible for government bond indexes, attracting steady demand from a much bigger pool of global investors,” it said.
Analysts also noted, however, that the upgrade – which could come as early as October from S&P Global Ratings – is “already in the price” and will not lead to a sharp reduction in Greek bond yield spreads relative to German bonds.
Jean-Christophe Machado, rates strategist at BNP Paribas, expects Greece to offer a 125 to 180 basis point spread over Germany once rated investment-grade and included in indexes, compared to around 140 bps currently.
Similarly, according to Reuters, “Societe Generale rates strategist Sean Kou also expects little impact from an S&P Global upgrade in October, recalling what happened with Portugal in 2017.”
“A reason why we think it is already priced in is because now pretty much everyone is expecting that (upgrade),” Kou is reported saying.
According to Commerzbank’s head of rates and credit research Christoph Rieger, official inclusion in the indexes could attract index buyers, but there may also be some selling from fast money investors like hedge funds that had bought Greek debt in anticipation of a move.
“Once that happens, they may cash out. So that’s why I think net net, there shouldn’t be a big rally on the back of the upgrade,” Rieger said.