Developments on the political front after the Tempe train tragedy have certainly come into the investors’ eye, but they are not printed as risks in the bond market. Moving elections to May instead of early April, with a second vote expected in the summer, lengthens the pre-election period, which is traditionally a signal for investors to refrain from any of their strategies, with an eye on polls and announcements. However, for the bond market, this does not increase the risk for Greece. This means that at present investors do not appreciate any change in the political scene, turning the path of fiscal policy and reforms so far, be it self-reliance or some kind of joint government after the elections. They also continue to estimate that after the elections, Greece will restore the investment level – in short, for the markets, the narrative for Greece has not changed.

Greece’s 10-year bond spread, which reflects the country’s risk to investors, remained in the 180 basis point range and continues to see the biggest decline in the eurozone since the start of the European Central Bank’s monetary tightening cycle in July 2022. , by about 90 basis points. Moreover, after the tragedy in Tempe on February 28, it practically did not change, and the yield on Greek 10-year notes fell to 4.3% from 4.5%. In addition, Greece’s spread continues to move closer to Italian bonds, while closing significantly compared to other countries in the region such as Spain (80bp difference).

Greek bond yields remain firm as markets look for higher house ratings after the election.

In the pre-election period before the January 2015 polls, when the coming to power of SYRIZA clearly represented for the markets a complete change in Greek economic policy and relations with the European Union, the Greek spread fluctuated at the level of 1000 basis points, and in the summer it reached 1800 due to the threat of Grexit and the introduction of control over the movement of capital. Of course, the monetary policy environment back then was very different than it is today, and practical support from the ECB (other than “by all means” in 2012) in bond markets was generally non-existent since Mario Draghi launched quantitative easing in March. In 2015, rates were at a negative level. Accordingly, another example of how markets are pricing political risk is the political crisis and the 2018 Italian elections, which saw spreads in Italy fall from 120bp to 120bp. at 300 m.v. in time … dt, and the pre-election period was characterized by acute political confrontation with a predominance of polarization and populist arguments.

Analysts say Greek bonds are essentially moving in the same direction as the rest of the eurozone, reflecting the outlook for monetary policy and development. The ECB’s aggressive policies and rhetoric have boosted bond yields across all countries significantly, especially short-term bond yields, which are more sensitive to changes in interest rate expectations. The market now expects ECB interest rates to rise above 4% by September, compared to the 3% they are expected to raise next Thursday.

“So far Greece maintains good relations with the EU. and continue its fiscal course, we are unlikely to see a major revaluation of Greek bonds,” said an analyst at the Italian investment house, who has been closely following political developments in Greece after the Tempi accident.

“What political risk?” Raffaela Tenconi, founder of Ada Economics and chief economist at Wood & Co., comments to K. In her opinion, for the markets, the assessment of the prospects for Greece after the elections has not changed. As he points out, “Greece bonds continue to have a strong price as there is growing awareness that Greece’s fundamentals are stable and a possible upgrade to investment grade is warranted.”