The positive effects of the investment grade recovery were reflected in both Greek government bond issues within 2024.

Greece’s latest exit to the markets with a 30-year bond provided a new strong vote of confidence in Greek bonds with investors offering €33 billion, while the interest rate was set at an investment grade level and compares directly with the corresponding interest rates of other countries in the Eurozone.

It was preceded by the issuance of a new 10-year bond, which attracted offers of 35 billion euros, while a historical record for the supply of funds was recorded in Greek assets and marks the entry of the Greek debt into a new period.

In other words, within almost two months, only Greek bonds attracted 68 billion euros, and if we add the offers for other Greek assets, there have been offers in the order of 100 billion euros in recent months.

The systemic banks have collected offers of almost 20 billion euros through the disinvestment process of the HFSF and also through bond issues, while we should also note the offers of 8 billion euros that existed during the introduction of AIA to the Stock Exchange.

At the same time, as market players observe, a new generation of more “quality” and long-term investors is being created for Greek assets, after the recovery of investment grade. The investment grade title allows a much larger audience of investors to invest in Greek assets.

The recovery of the investment grade, in addition to the bond market, creates a different investment audience for the Greek stock market and puts its upgrade in the developed markets on the final stretch.

The bonds

The Bank of Greece points out the positive effect of the recovery of the investment grade for the bond and stock market in its latest report on Financial Stability.

In Greece, during the period August-December 2023, three of the four rating agencies recognized by the Eurosystem upgraded Greece’s credit rating in the investment category, as the favorable dynamics for public debt servicing, the government’s commitment to fiscal discipline were positively assessed and the timely implementation of an ambitious investment-oriented reform program, the continued development of the Greek economy, but also the further improvement of the financial dimensions of the Greek banking sector.

First Scope in August 2023 and then DBRS in September proceeded to upgrade the country’s creditworthiness, followed by Standard & Poor’s in October and Fitch Ratings in December of the same year, shaping the country’s credit rating to (BBB-) . The upgrade of Greece by the rating agency Moody’s is pending.

Greek government bond yields fell for all maturities between November 2023 and March 2024, with markets positively valuing the country’s investment grade recovery.

The difference in yield (spread) of the ten-year Greek government bond against the corresponding German (Bund) decreased from 140 basis points at the beginning of November 2023 to 109 basis points at the end of March 2024.

Due to the improvement in the economic climate, Greece’s 5-year Credit Default Swaps (CDS) fell significantly during November 2023 – March 2024 and stood at 62 basis points at the end of March 2024, from 86 basis points in early November 2023.

The prices of the five-year credit risk premiums for all major Greek banks followed a corresponding downward trend until March 2024, remaining at significantly higher levels than those of Greece.

As the Central Bank notes, in February 2024 the public raised 4 billion euros from a new issue of a 10-year bond with a yield of 3.478%, significantly lower than the 4.279% in the corresponding issue in January 2023. It is worth noting that this issue succeeded at the same time three records: (1) It raised the largest bid book ever recorded for a Greek government bond, exceeding €35 billion, with a coverage ratio of 8.75x (compared to 6.26x in the previous corresponding issue). (2) The bond’s pricing closed with the lowest yield spread ever achieved in a Greek issue – at 80 basis points above the mid-swap rate. (3) It is the largest 10-year bond issue since 2010.

The above issues were the first after the recovery of the investment category by the major rating agencies and their success reflects the particularly increased investment interest in Greek securities, due on the one hand to the fact that Greek bonds now have a larger audience of investors due to their inclusion on the international indices and on the other hand the strong demand for government issues in general, in view of the market’s expectations for a relative relaxation of the monetary policy of the Eurosystem from the end of the second quarter of the year.

The Stock Exchange

This fact, combined with the improvement of the financial situation of Greek non-financial companies, the generally favorable macroeconomic environment, the formation of conditions of political stability, as well as the encouraging employment statistics with the continued reduction of the unemployment rate, contributed decisively in consolidating a positive climate in the Greek stock market.

Therefore, between November 2023 and March 2024, the domestic stock market indices followed a steady upward trend and the General Price Index of the Athens Stock Exchange (GDEX) reached an almost ten-year high in March 2024 (1,434.87 points), increased by 19, 9% in relation to November 2023, as the BoE report points out.

With regard to the important banks whose shares are listed on the Athens Stock Exchange, the Market Capitalization indices in terms of Asset Weighted followed a parallel course with the GSDF, registering a significant increase in the period November 2023 – March 2024, due to the positive course of the finances sizes of the banks, the upgrading of their credit capacity in December 2023 by two rating agencies (Standard & Poor’s and Fitch), as well as the recovery of the investment category for the country’s debt.

The difference in valuations between European and Greek stocks widened in the period November 2023 – March 2024, as the GSXR rose less compared to the Euro Stoxx 5030 index (18.6% vs. 24.4%, respectively). The price to book value (P/BV) ratio of European equities in the period November 2023 – March 2024 increased from 1.77 to 2.16, while the corresponding index of the GDF increased from 1.15 to 1.32 in that period. It is pointed out that the European average P/BV amounts to 1.96 in the specific period and continues to be significantly higher than the corresponding Greek one (1.25).

The banks

The bond yields of Greek banks fell during the period November 2023 – March 2024, due to the recovery of the investment category for the creditworthiness of the country, the improvement of the financial sizes of the banks, but also the upgrading of their creditworthiness. The credit upgrades have given new impetus to attracting investment capital, as investors have until recently been reluctant to locate in the country given statutory and institutional constraints. At the same time, the acceleration of the disinvestment of the Financial Stability Fund from the equity capital of major banks created a climate of euphoria, which was reflected both in the valuations of equity values ​​and in the yields of their bond issues. In this context, Greek banks proceeded to raise a total of 2.8 billion euros from the issuance of both low and high priority bonds between November 2023 and March 2024.

It is pointed out that the de-escalation of the banks’ capital raising costs is inextricably linked to the effort to cover the supervisory obligations of the minimum capital requirements and eligible liabilities (MREL). Therefore, any future credit rating upgrades of the four major banks will further contribute positively to this effort.