The markets consider it certain that Greece will soon receive the “stamp” of investment grade from the major rating agencies after 13 years
Two months ago, the general director of ODDICH, Dimitris Tsakonas, had declared from the conference stage of the Chamber of Commerce that in terms of market Greece has achieved the investment grade and that public debt has no risks.
On Friday, Reuters reported that Greek bonds are trading as if they have already been rated investment grade. As he explained, the result of last Sunday’s elections created the expectation among investors that there will be self-reliance of New Democracy in the second elections in June and that reforms and growth will continue as well as the reduction of public debt, thus discounting the recovery of investment rank after 13 years.
Investors’ expectations were reflected in reduction in Greek 10-year bond yields by more than 15 basis points this week to near 3.85%, continuing their pre-election downtrend. Compared to a month ago (26/4), the yield on Greek 10-year bonds had decreased on Friday by 32 basis points, while in the other countries of the Eurozone it increased by 2 to 12 bp. Greece’s borrowing costs, based on these data, were 50 bp. lower than that of Italy and Britain, two investment-grade countries, while it is now very close to that of the US, where the yield on 10-year bonds was just under 3.8%.
The full discounting by investors of the investment grade recovery is also reflected in the spread with German bonds, which are the benchmark in the Eurozone. The yield on German 10-year bonds rose last month by 11 bp. to 2.50% as a result of which the spread fell below 140 bp. (1.4 percentage points). Against Spanish and Portuguese bonds, the spread narrowed to 30 and 60 bps, respectively.
These data confirm that the markets consider it certain that Greece will soon receive the “stamp” of investment grade from the major rating agencies. This “stamp” will not only have a symbolic character, as based on it Greek bonds will enter the radar of large institutional investors, such as pension and other insurance funds, which can only invest in bonds that have an investment grade. In addition, the European Central Bank will be able to buy Greek bonds or accept them as collateral to lend to Greek banks, without being required to decide on an exception to its regulation, as it did in the pandemic with the emergency bond buying program.
When can Greece get formal investment status? Of the four big houses, whose ratings are taken into account by the ECB, Fitch, S&P and DBRS are of the greatest immediate interest as they rate Greece just one step below investment grade, while Moody’s rates it three steps below. .
Fitch, which upgraded Greece last January, has an assessment scheduled for June 9. In a report on May 12, he noted that Greece’s fiscal results in 2022, such as the primary surplus, were even better than estimates, with the overall and primary fiscal results beating his expectations by more than one percentage point.
DBRS will evaluate Greece on September 8 and last Tuesday in its analysis it noted that “the results of the elections signal a continuation of the policy”. He linked, indirectly but not clearly, the political stability in the country prescribed by the possible self-reliance of the ND after the June elections with the prospect of recovering the investment grade. “The possible victory of the ND would give it the mandate to continue the implementation of reforms and investments, strengthening Greece’s development prospects,” he said characteristically.
S&P, which upgraded in April in the positive outlook for Greece’s debt, will make a new assessment on October 20. In April, it noted that it could upgrade Greece to investment grade within the next 12 months if the new government continues its fiscal adjustment policy and reforms that boost the economy’s competitiveness.
Moody’s will assess Greece on September 15, while in its analysis on Thursday it noted that the strong percentage obtained by New Democracy in last Sunday’s elections significantly increases the possibility that it will form a government again, “which means continuity in fiscal and economic policy and it is positive for the creditworthiness of Greece”.
The house predicted that growth will be supported and, combined with the commitment to fiscal adjustment and an increase in primary results, the prospects for a significant reduction in Greek debt will improve. It predicts, in fact, that Greece will achieve one of the largest reductions in its debt worldwide, estimating that it will fall below 150% of GDP in 2025 from 171% last year.
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