At the beginning of August 2023, the first substantial step was taken to upgrade Greece’s credit rating in the investment category. The German rating agency Scope Ratings, which, however, was not recognized by the ECB (today it is recognized), gave the investment grade to Greece.

DBRS followed in September 2023, Standard & Poor’s in October and Fitch Ratings in December of the same year, setting the country’s credit rating at (BBB-). Moody’s remains to upgrade Greece, with Greece’s long-term credit rating remaining at Ba1 (one notch below investment grade) with stable re-rating prospects. Moody’s new rating is scheduled for September 13, while S&P (10/18) and Fitch (11/22) will take turns.

Moody’s rating, on September 13, is particularly important as Moody’s is the largest in the world, which is why the potential demand in the event of an upgrade for Greek bonds may now even reach 20 billion euros.

The recovery of the investment grade came as the favorable dynamics for servicing the public debt, the government’s commitment to fiscal discipline and the timely implementation of an ambitious investment-oriented reform program, the continued development of the Greek economy, but also the further improvement of economic sizes of the Greek banking sector.

The positive effects of the investment grade recovery were strongly reflected in the two issuances of Greek government bonds in early 2024.

In almost two months, Greek bonds alone attracted 68 billion euros (from the issuance of 10-year (35 billion) and 30-year (33 billion) if we add the offers and for other Greek assets there have been offers of 100 billion euros in early 2024.

In the same period, the systemic banks collected offers of almost 20 billion euros through the disinvestment process, but 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.

Of particular interest are the estimates for capital inflows into bonds and shares, before upgrading to investment grade, which are mentioned in a study published in the latest financial Bulletin of the Bank of Greece. According to the specific study, from the fourth quarter of 2022 to the third quarter of 2023, the increase in positions in bonds and shares is estimated at 5 billion euros, of which 2.9 billion euros concern positions in shares and 2, 1 billion euro positions in bonds.

Bonds

In February 2024, the Greek State raised 4 billion euros from a new issue of a 10-year bond with a yield of 3.478%, significantly lower than that of the issue of the same duration in January 2023. It is worth noting that this issue simultaneously achieved 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 pricing of the bond closed with the lowest yield difference (country premium) that has been achieved in a Greek issue. (3) It is the largest 10-year bond issue since 2010. February also saw the reissue of the January 2023 10-year bond, from which €200 million was drawn at a lower yield. In April, ODDIX reissued the 15-year bond issued in February 2020, raising €200 million at a higher yield compared to the initial issue. Finally, in May ODDIX raised €250 million from the reissue of the 10-year bond with a yield of 3.51%, as well as €3 billion from the issue of a 30-year bond with a yield of 4.241% and a strong coverage ratio, reflecting the strong demand mainly from international investors. The criterion for this issue was mainly to capture the appropriate (“fair”) pricing for the specific duration in the long-term portion of the yield curve.

According to the Bank of Greece, the change in the outlook of the credit assessment of the Greek economy to positive by Standard and Poor’s in April 2023 led to a significant increase in the positions of investment funds in Greek government bonds, in relation to other government bonds in the zone of the euro. This development led to a reduction in the yields of Greek government bonds corresponding to approximately 80% of the fall in their yield differentials against the reference German bonds.

These results are remarkable for two reasons. On the one hand, the increase in demand for Greek securities was observed at a time when investment funds were reducing their positions in bonds with low credit ratings.

On the other hand, the decline in Greek government bond yields, largely explained by the increase in the positions of international investment funds, outweighed the upward pressures observed on bonds internationally due to interest rate increases.

Investors had already started discounting Greece’s investment-grade sovereign credit rating upgrade after S&P changed its outlook to positive in April 2023.

This development led to a significant increase in the portfolio positions of international investment funds in Greek government bonds.

The impact of the upgrades continued beyond Q4 2023 and explains a decline in Greek government bond yields of around 20bps. in addition to the reduction caused by the formation of expectations for a reduction in key interest rates.

Thus, their yield differentials against other eurozone government bonds have narrowed significantly.

In particular, the spread of the Greek ten-year bond against the German bond of the same duration decreased in 2023 (by 98 bp to 105 bp) and has remained at these lower levels since then.

At the same time, the yield of the Greek ten-year government bond fluctuates at considerably lower levels compared to that of the corresponding Italian ten-year bond, as early as the second quarter of 2023. In fact, the yields of the Greek government bonds, across the entire range of the yield curve, followed the downtrend shaped by the positive outlook and upgrades made in 2023.

Of course, more recently, the revision of investors’ expectations for key interest rates in the euro area, as well as the spillover effects from the corresponding revision of interest rate expectations in the US, have also exerted upward pressure on Greek government bond yields, mitigating their overall reduction. The Hellenic State increased the raising of medium-long-term funds from the international capital markets in 2024 compared to the corresponding period in 2023. Bond issues within 2024 had a reduced weighted average yield compared to those in 2023.

Recent bond issuances have seen a significant reduction in the borrowing costs of the Greek State, a fact linked to the upgrade to the investment category, which results in an increase in demand for Greek securities, especially Greek government bonds, on the part of international investors. It is also worth noting that the recent issuances of long-term and very long-term bonds, in addition to increasing the weighted average duration of the debt traded in the bond market, also carry a very positive signal, due to strong demand

Thus, the Greek State can gradually replace short-term debt with longer-term issues, as shown by the reduction of new issues of interest-bearing bills. Specifically, during the first half of 2024, short-term securities (i.e. 3, 6 and 12-month interest-bearing bonds) were issued for a total amount of 8.5 billion euros (against 11.6 billion euros for the same period in 2023).

Finally, as Greece’s sovereign credit rating upgrades broaden the investment base for Greek government bonds, there is a slight increase in trading volumes in the secondary market. The average daily value of transactions in the Electronic Secondary Securities Market (SDAT) has been around 81 million euros on average since the beginning of the year, compared to 78 million euros for the same period in 2023. of which both domestic and international transactions in Greek government bonds are settled, the average daily value of purchases and sales for 2024 until the end of May was 519 million euros, compared to 503 million euros in the corresponding period of 2023.

Stock exchange

The stock market from April 2023, which, according to the Central Bank, essentially started the countdown to the recovery of the investment grade, as we mentioned above, records gains of over 30%. According to stock market analysts, the discounting of the investment grade started from the lows of September-October 2022, having given a rise of more than 60% to the main stock market index.

The market from the lows of 850 points reached as high as 1,500 points, effectively closing the “black hole” of the crisis – ending a painful stock market cycle of more than 13 years.

The market valuation now stands at €100 billion, the highest since late November 2009. The average market capitalization in the first half of 2024 increased by 28.4% compared to the corresponding average market capitalization in the first half of 2023 ( Euro97.6 billion against Euro76.0 billion).

At the same time, average daily trading activity soared to pre-Lehman Brothers levels, more than 15 years ago.

The Average Daily Value of Transactions, during the first half of this year, amounted to Euro143.8 million, showing an increase of 30.0% compared to the first half of 2023 (Euro110.6 million)
The Athens Stock Exchange was in the top positions in the ranking of global markets in July (+5.26%), registering the third best performance among global indices.

At the level of the seven months January-July, the General Price Index recorded a gain of 14.31% and was in 10th place in the ranking of global indices, but outperforming the major European markets and shares in the USA. Bank shares showed higher returns than the general index of the AXA, mainly in connection with the upgrade of the government credit rating of Greece in the investment category, the increased profitability and the upgrades of the credit ratings of the banks. It should be noted that all Greek banks have been upgraded to investment grade, and indeed two scales above the minimum threshold.

At the same time, the significant increase in demand for Greek shares from international investors greatly facilitated the disinvestment of the Financial Stability Fund (HFS) from the share capital of Greek banks.