Market prospects district bonds have improved, with further spread widening becoming increasingly unlikely, Société Générale notes, estimating that the smaller markets of the South, which at the same time have low issuance needs until the end of the year and improved fiscal prospects, such as Hellas, will record the best performance. Therefore, he maintains his positive attitude towards Greek bonds, placing them among the main “bets” in 2023.

Investors are now focused on completing the cycle of monetary tightening. European Central Bankbelieving that inflation will continue to fall and thus Eurozone bonds show “immunity” to the aggressive rhetoric that the central bank continues to carry out. This suggests that the markets are not convinced by her efforts to “wind down” their heightened optimism. “Investors are seeing the end of interest rate hikes and spreads are holding up well with the ECB’s announcement, so we are now more positive about the region’s bonds,” the French bank said. This means, he adds, that an aggressive ECB (and a higher final rate) is less likely to widen spreads than in the past, especially given recent strong performance in equities and corporate bonds and confirmation of weaker nominal inflation in Germany. .

“If investor appetite for bonds remains strong in the first half of the year, as we expect, the picture for the periphery countries will be less dire than many expected at the end of 2022,” Société Générale emphasizes. Eurozone countries have already issued €138 billion worth of bonds, or 30% of their total need for 2023, in net terms, according to the French bank, with the market absorbing issues easily and demand will be particularly strong.

Société believes the smaller bond markets will benefit the most with tighter spreads. Since the end of 2021, investors have been favoring bonds that are less liquid than German bonds, for example, and this is expected to continue.

In Europe as a whole, the bond markets of Greece, Austria and Finland have the lowest liquidity and the smallest trading volumes. In addition, as the French bank points out, the significant improvement in the fiscal performance of Portugal, Ireland and Greece is likely to continue in 2023, and this will support the growth of their bonds this year. In addition, Greece is one step away from investment grade and, unlike Italy, will not be affected by the quantitative tightening (QT) of the ECB. Thus, Société’s main “bet” for 2023 is positive (long) positions in Greek 10-year bonds against Italian ones.