Greek Bond Sale Gains Backing from Investors
The country’s first bond sale since Europe’s debt crisis raised €2.5 billion last week. Order books reached a ceiling of €11.8 billion.
Investors began snapping up 10-year Greek debt at a 3.9 percent yield. This came after Moody’s, a credit risk rating agency, lifted the country’s rating scale from B3 to B1 earlier in the month. Such progress reduces the likelihood of credit risks around fixed-income obligations. Nevertheless, the credit rating remains classified as speculative.
Sovereign Debt Demand Sends Greek Yields to 13-Year Low
10-year yields dropped to 3.6 percent on the session, a low not seen since early 2006. Major Greek banks were up for the day as well, with Greece’s index outperforming Europe’s wider stock index. Moody’s endorsement somewhat verifies that the country’s reform programme has started bearing fruit.
The sale was the country’s first since it was shut out of international capital markets and was forced to seek the first of its three bailouts.
Get our Weekly Commitment of Traders Report: - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
Central Banks U-Turn a Cornerstone?
Greece has ventured into the international capital markets again after the country’s weak attempt to exit the European Union back in 2015. The country has now ventured into capital markets once in 2017, once in 2018 and twice in 2019.
Both attempts prior to 2019 raised €3bn each at a lower yield of 3.6 percent despite the maturity of the bond itself being lower. The late January 2019 sale “drew over €10 billion in demand”.
Meanwhile, the country only emerged from a €86 billion punishing bailout in August last year. The sale is the first post-bailout debt sale.
With Moody’s upgrade and the market’s appetite for higher-yielding longer-dated bonds, Greek markets are starting to thrive. Besides the urge for greater returns, interest rates are unlikely to see the light of day any time soon. This is at least true in Europe, since Mario Draghi pushed the hiking cycle back to 2020. And investors have now limited options with one being high-yielding bond purchases.
In addition, the ECB ended its QE (Quantitative Easing) programme only in December 2018. And the Fed’s language has been tailored to a slightly gloomier outlook. This makes investors feel more confident with the country’s bid to dish out surpluses throughout 2022. Besides, forecasts indicate that Greece’s real GDP will appreciate in Q2 2019, remaining firm until the end of the year.
Expectations are for Greece’s public debt-to-GDP ratio to settle at a high 174% in 2019. Although hefty, this is much lower compared to the post-Grexit vote record high of 181 percent in 2016. Also, that is a reduced figure from the 178.6 percent seen in 2018.
Lessons to Learn from the 1st “Exiteers”
Back in 2015, PM Tsipras made far-fetched promises to denounce Greece’s past bailouts and routed for the famous “Grexit vote.” The 2015 bailout referendum resulted in the majority of Greeks rejecting Europe’s austerity measures. Despite the result, the Greek government reached an agreement for a 3-year bailout.
The PM received no sympathetic hearing after defying the people’s vote but gained popularity in Europe. On top of that, Tsipras resisted the temptation to imitate a number of xenophobic EU politicians. This earned him a higher level of public respect in an era of refugee crises.
His 180-degree shift seems to have had a serious impact on Greece’s debt restructuring, let alone the overall investment prospects in Greece.
Will Greece’s, or PM Tsipras’s narrative repeat itself in Britain? May’s ‘charming’ behavior certainly does not attract the same respect both at home and away. But with parliament’s vote scheduled on the 12th of March, we are going to find out sooner rather than later.