Greece will have a chance to return to investment grade, symbolically closing the cycle of the debt crisis after at least 13 years of being in the trash, tonight, when S&P announces the results of the revision of Greece’s rating.

The rating agency currently places Greece one notch below investment grade, at BB+ with a stable outlook.

Given the high political uncertainty ahead of the election, analysts in London believe that any increase will be delayed until after the election.

A return to investment grade is likely to occur by the end of 2023, Societe Generale estimates in today’s analysis, as it highlights that now is not the best time to increase.

“Rating agencies are generally cautious about upgrading and should pay attention to any risks in order to avoid fluctuations and a return to the previous ratings,” analysts say.

“The May election is one of the risks that could complicate the situation,” they add. At worst, according to Societe Generale, the new ruling coalition that will form as a result of the elections could reverse the reforms needed for Greece’s economic and fiscal improvement.

“It is unlikely that this will happen, but it is expected that the rating agencies will not upgrade the rating until the uncertainty associated with the continuation of reforms decreases,” the report says.

Greece was last upgraded by S&P in April 2022 and by Fitch in January 2023, while the rate of upgrades has slowed to about one step a year this year.

Thus, Societe Generale believes that the most likely time to upgrade Greece’s rating to BBB- (ie investment grade) is October 20 for S&P and December 1 for Fitch.

What does update mean?

According to representatives of the house, the positive impact of the renovation could be large. If the move takes place before the summer, it will be more than a symbolic moment.

Many funds, within their mandate, are limited to investing only in investment grade bonds (often this means they must have investment grade ratings of at least two houses, or an investment grade rating based on the average of the three major houses). As such, markets will discount potential capital inflows and lower bond yields once the investment grade rating is restored.

For example, after S&P upgraded Portugal to investment grade in 2017 without previously giving a positive outlook, the Portuguese-Spanish bond spread narrowed by 36 basis points during the week.

So far, markets haven’t discounted a similar surprise rise for Greece from the S&P so far, according to Societe Generale, as the spread on Italian 10-year bonds has ranged from -10 to 35 basis points since December. This is despite the fact that Greece has already covered €6.3bn of its €7bn borrowing needs for 2023, with €300m of 10-year bond reissues failing to widen the spread.

In this context, Societe Generale advises its clients to position themselves in Greek bonds in anticipation of the S&P in order to take advantage of a possible surprise.