Greek bonds are what investors should watch out for, as the European Central Bank accelerates its retreat from very loose monetary policy, according to Deutsche Bank. Nevertheless, despite the increase in borrowing costs, JP Morgan insists on its long positions in Greek 10-year bonds.
Yesterday’s increase in Greek bond yields is, according to Deutsche Bank analysts, one of the most important developments in the markets, as the 10-year yield reached an increase of up to 25.5 basis points, to the highs of the day. The de-escalation that followed was smaller than that observed in the bonds of other countries in the region, with the result that the 10-year yield closed only 6.1 basis points lower than the day’s high, at 2.45% (with an increase of 22 basis points ).
Deutsche Bank analysts remind that at the mid-2021 low, the yields of the Greek 10-year period had approached 0.5%.
“(The Greek bond) is one to watch as the ECB accelerates its regression,” analysts said after last week’s global sell-off continued, with long-term bond yields reaching new highs.
Yesterday, Christine Lagarde’s speech helped calm the spreads of the region, after the morning commotion. What did the President of the ECB say? According to Deutsche Bank, her speech before the European Parliament was in a similar tone to what the ECB communicated last week, stating that inflation risks have increased. Lagarde stressed that the ECB will take a gradual approach to tightening policy, separating its position from the other major central banks that may need to withdraw monetary support measures more quickly.
What led to the de-escalation of the region’s bond pressures was Lagarde’s strong support for the region by answering many questions, noting that the ECB will use any tool to ensure that policy is transmitted to all member states.
“Even if we are far from in crisis, the coming months will be exciting to see how far central banks can go in tackling inflation, and investors are more confident that we will see several increases from the central banks worldwide in the coming months “, note the analysts of Deutsche Bank.
As for the ECB, the house has revised its estimates and now expects the first interest rate hike by 25 basis points in September (without ruling out a move from June) and the second in December.
Long remains JP Morgan
Against the increase in yields, JP Morgan maintains its long positions in Greek bonds compared to the rest of the region.
“Despite the negative medium-term outlook for the spreads of the region, we do not consider it attractive in terms of risk / reward to bet on the expansion of spreads in the short term, as we expect the market to expand spreads between Eurozone countries, but at the same time “The ECB will actively use PEPP markets flexibly until March 2022 to address any sharp enlargement moves, as President Lagarde explicitly stated in its latest press conference,” the US analysts said.
In this context, according to the forecasts of JP Morgan, the spread of the Greek 10-year against the corresponding German title will shrink to 135 basis points in March 2022 and to 120 basis points in June 2022. In the process, it will strengthen again to 130 base units in September and 140 base units in December 2022.
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