“Greek bonds are making waves, closely following Europe’s leading countries,” reports Reuters in its analysis.

Greece, he notes, heads into Sunday’s elections with its bonds trading close to the levels of prime countries in the Eurozone periphery, a decade after the debt crisis that led to its dramatic restructuring.

The difference in the spread of Greek bonds (the divergence of their yields against German bonds) relative to the spread of leading countries in the region, such as Spain, is narrowing and could disappear entirely as the Greek debt profile has improved and the Greek economy will enjoy the support of European funds in the coming years, it is noted.

According to a recent Bank of America report, Greece’s private sector was fully deleveraged at the end of the crisis, having one of the lowest loan-to-deposit ratios among developed economies and a large investment gap relative to other Eurozone countries.

In addition, nearly 80% of central government debt is held by the official sector, with a weighted average maturity close to 20 years and a fixed cost of servicing.

“These factors justify a smaller or no spread (against Spain),” said Athanasios Vamvakidis, head of FX strategy for the G10 at BofA. “The Greek bond market is not as liquid and tends to fluctuate more, but we have some good news. We cannot say that the prices are fictitious,” he added.

The Greek economy, Reuters notes, remains highly exposed to highly volatile sectors such as tourism and shipping, but is less sensitive to manufacturing headwinds.

Political stability is also critical, he adds. Under the new electoral system, the winner of the June 25 election can get bonus seats, so if New Democracy under Kyriakos Mitsotakis broadly repeats May’s performance, it will likely secure a parliamentary majority.

The spread of Greek government bonds relative to their Spanish counterpart recently fell to the lowest level since 2008, close to 27 basis points. Across Southern Europe, only Portuguese and Spanish bonds trade at a narrower spread than Greek bonds.

Goldman Sachs predicts that Greece’s debt-to-GDP ratio will fall by 10 percentage points in a year and will be lower than Italy’s in 2026 as it foresees a small primary surplus combined with strong economic growth in Greece,

The American bank notes that even in its worst-case scenario, which foresees a contraction of the economy by one percentage point or an expansion of 100 bp. of the spread, the course of Greek debt reduction would not be significantly derailed.

At the end of 2023, Greek debt as a percentage of GDP is expected to fall to around 160%, while Italy’s is estimated at 142%, according to official forecasts.

“The combination of low sensitivity to policy rates, thanks to financial aid programs that remain in place and the investment boost from the European Recovery Fund (about 3% of GDP per year) provide unprecedented support for the Greek economy,” said the Goldman Sachs economist , Philip Tadei.

“The key reason why the spread of Greek bonds is lower than Italian bonds is that Greece basically has no refinancing needs in the next 10 years thanks to the measures taken 10 years ago during the sovereign debt crisis,” said Piet Heines Christiansen, director of fixed income analysis at Danske Bank.