“Greece’s return to investment grade credit ratings, which it lost for more than a decade during the euro debt crisis, is a fait accompli as far as bond investors are concerned. “, wrote Reuters in an analysis. .
According to the agency’s analysis, “the country, labeled ‘junk’ by the three major rating agencies since the end of the bailout in 2018, has struggled to regain investor favor and the coveted rating – a pledge of fiscal credibility.Investors hope that the New Democracy party – the big winner of Sunday’s elections – although it did not obtain an absolute majority – will remain in power after a second round in June and continue the reforms, paving the way for Greece to reclaim the ratings”.
As Reuters points out: “Bank analysts who deal with Greek government debt said that after borrowing costs fell sharply this week, bonds were already trading at investment grade.”
Although Italy has investment grade ratings from three major rating agencies, Greek 10-year bond yields of around 3.9% are currently trading around 50 basis points below those of Italy. , the biggest drop since at least 1999, according to data from Refinitiv. .
“I would say the (rating) upgrade has been priced in. We don’t expect any significant movement after the upgrade,” said Jean-Christophe Machado, interest rate strategist at BNP Paribas, making reference to the Greece-Germany bond spread. .
As Reuters points out: “Greek 10-year bond yields fell nearly 15 basis points after Sunday’s election result. risk premium – is the lowest since 2021″.
Greece is rated BB+ by S&P Global and Fitch and Ba3 by Moody’s.
“Since the end of the bailout in 2018, Greece has regained market access, reduced its public debt, which was at an all-time high, and growth should continue to exceed the European Union average this year and next year. be more than symbolic for the country, making Greek debt eligible for government bond indices, attracting steady demand from a much wider group of global investors.
A first update could take place as early as October, when S&P Global Ratings will have to revise Greece’s rating. When he gave his positive outlook in April, he said Greece could be better over the next year if a new government maintains fiscal discipline and the pace of reforms that unlock the government’s stimulus funds. ‘EU’, according to the Reuters analysis.
JPMorgan, which sees a “strong chance” that Greece will achieve a quality rating by early 2024, expects the yield spread over German bonds to be 165 basis points. in March 2024 about 20 mp higher than today.
BNP Paribas’ Machado expects Greece’s spread to be between 125 and 180 bps. with Germany, after it was rated investment grade and indexed, against around 140 bps. for now, indicating that further tightening will be limited.
Societe Generale strategist Sean Kou also expects little impact from an S&P Global upgrade in October, recalling what happened in Portugal in 2017. Portugal bond yields fell sharply after S&P upgraded it to Investment Grade Global Ratings in 2017, but the move surprised markets as the rating agency went straight from a BB+ rating to a stable outlook, rather than fixing first a positive outlook – as is currently the case with Greece.
A subsequent upgrade by Fitch Ratings had much less impact.
“One of the reasons we think the price is already priced in is that now almost everyone is waiting for it (the upgrade),” Kou said.
Commerzbank’s head of rates and credit research, Christoph Rieger, said he also expects ratings upgrades from other houses that would make Greek debt eligible for government bond indices, as it has already been assessed.
Rieger said inclusion in the official index could attract buyers, but there could also be selling off by quick investors such as hedge funds that had already bought Greek debt in anticipation of a move.
“Once that happens, they can rush to cash in. That’s why I think there shouldn’t be a big rally as a result of the upgrade,” Rieger said.
* Societe Generale: Resumption of investment grade by Greece on 20/10 or 01/12 with the government of ND
* Morgan Stanley: Top Pick Greece – Investment phase approaching, overweight Greek equities
* Citi: Stabilization then new rally in Greek bonds