Two months ago, ODDICH CEO Dimitris Tsakonas said at an Economic Chamber conference that, in terms of the market, Greece has reached investment grade and that public debt is risk-free.

On Friday, Reuters reported that Greek bonds were trading as if they were already investment grade. As he explained, the results of last Sunday’s elections created expectations among investors that the New Democracy will show independence in the second elections in June and that reforms and growth will continue, as well as a reduction in public debt, which does not take into account the recovery. investment grade after 13 years.

Investor expectations were reflected in Greek 10-year yields falling more than 15 basis points this week to almost 3.85%, continuing their pre-election decline. Compared to a month earlier (26/4), yields on Greek 10-year bonds fell by 32 bp on Friday, while in other eurozone countries they rose by 2 to 12 bp. The cost of Greece’s borrowing, based on these data, amounted to 50 bp. lower than Italy and the UK, two investment-grade countries, while now very close to the US, where 10-year bond yields were just under 3.8%.

Investors’ full discounting of the investment-grade recovery is also reflected in the spread with German bonds, which is the benchmark in the Eurozone. German 10-year bond yields rose 11 bps last month. to 2.50%, bringing the spread below 140 bp. (1.4 percentage points). In relation to the bonds of Spain and Portugal, the spread narrowed to 30 and 60 bp. respectively.

These data confirm the confidence of market participants that Greece will soon receive an investment grade “stamp” from the main rating agencies. This stamping will be more than symbolic, as it will put Greek bonds on the radar of large institutional investors, such as pension and other insurance funds, who can only invest in investment-grade bonds. In addition, the European Central Bank will be able to buy Greek bonds or accept them as collateral for lending to Greek banks without having to decide on an exception from its regulation, as was the case during the pandemic with the emergency bond purchase program.

When can Greece get official investment status? Of the four big houses rated by the ECB, Fitch, S&P and DBRS are of the most immediate interest as they rate Greece just one notch below investment grade and Moody’s rates it three notches below.

Fitch, which upgraded Greece’s rating in January last year, plans to assess on June 9th. In a May 12 report, he noted that Greece’s 2022 financial results, such as primary surplus, were even better than estimates, with overall and primary financial results beating his expectations by more than one percentage point.

DBRS will assess Greece on September 8, and last Tuesday in its analysis noted that “the election results signal a continuation of the policy.” He linked, implicitly but not explicitly, the political stability in the country, due to the possible self-sufficiency of the ND after the June elections, with the prospect of restoring the investment level. “The eventual victory of the ND will give it a mandate to continue reforms and investments that strengthen Greece’s development prospects,” he said.

S&P, which upgraded Greece’s sovereign rating outlook to positive in April, will make a new assessment on October 20. In April, he said he could upgrade Greece’s rating to investment grade over the next 12 months if the new government continues its fiscal adjustment policies and reforms that increase the competitiveness of the economy.

Moody’s will assign a rating to Greece on September 15, and in its analysis on Thursday it noted that the strong percentage gained by New Democracy in last Sunday’s elections significantly increases the likelihood of a government re-formation, “which means continuity in fiscal and economic policy, and this is positive for Greece’s creditworthiness.”

The House of Representatives forecasts that growth will be sustained and, coupled with commitments to fiscal adjustment and an increase in primary results, the prospects for a significant reduction in Greek debt will improve. In fact, it predicts Greece will achieve one of the largest reductions in its debt in the world, estimated to fall below 150% of GDP in 2025 from 171% last year.

Source: RES-IPE