Yields on 10-year Greek government bonds fell last week to their lowest level since July 2022, when the European Central Bank began raising interest rates.

On Thursday, the yield closed at 3.34% based on the Bloomberg platform, down more than half a percentage point (58 basis points) from a month ago. In the same period, the yield on the corresponding German bonds, which are also the reference securities for the Eurozone, fell by less than half a point (47 bp) to 2.19%, with the result that the spread – the difference of the yield of Greek bonds in relation to German bonds – at 1.15 percentage points.

Thus, the trend of reducing the spread that had started earlier this year, when it became clear that Greece would receive investment grade based on the reports of the credit rating agencies, continued. This trend was strengthened after the first elections held in May, when it became clear that New Democracy would win the elections on its own, dispelling any political uncertainty that existed.

Many analysts noted at the time that the recovery of the investment grade had been discounted by investors and therefore, when Greece would receive it “with the stamp” of the credit rating agencies, there would be no room for a significant further reduction in the spread of Greek bonds.

After the recovery of the investment grade – in September by the Canadian house DBRS, in October by the American S&P and on December 1 by the also American Fitch – the reduction in the spread continued. Last week it further decreased by 11 bp. as Greek bonds will now be able to enter major international indices, such as Bloomberg, attracting more institutional investors.

If Greece gets the investment grade from the third major American house Moody’s in the assessment it will make in March, the possibility of capital inflows into Greek bonds will be expanded even more.

In addition to the reduction in the spread, the reduction in yields itself is important, as this determines the borrowing costs of the public sector and of companies financed by the capital markets. The 10-year yield stands at 3.3%, while for the 10-year American bonds it is at 4.12% and for the corresponding Italian bonds at 3.93%.

In addition to the investment grade, investors’ firm belief that the ECB and the US central bank (Fed) are not going to raise interest rates further and that they will proceed with their reductions earlier than expected contributed to the decline in yields. 2024.

The yield on 10-year US Treasuries, which had touched 5% in late October, plunged after the Fed’s last meeting on November 1, when the US central bank left interest rates unchanged again. Then, data showing US inflation easing to 3.2% in October reinforced the yield-deceleration trend.

In the Eurozone, yields also started to fall after the ECB’s last meeting in Athens on October 26, when interest rates were left unchanged for the first time after 10 straight hikes. Better-than-expected data on inflation in the last three months, and especially in November, when it fell to 2.8%, gave new fuel to the decline in yields, especially after Isabelle Schnabel’s interview.

Schnabel, who is German and has a significant influence on the ECB’s policymaking, made it clear that there are no further interest rate hikes on the horizon and left open the possibility of their first rate cut before the summer of 2024.