Greek Bond Yields Fall to Record as Scars of Debt Crisis Fade

(Bloomberg) --

The yield on Greece’s benchmark bonds dropped to an all-time low as support from the European Central bank and the European Union quells investor concerns about the health of the region’s most indebted nation in the face of the coronavirus.

Yields on the nation’s 10-year securities fell as much as six basis points to 0.88%, dropping below a previous low set in February, before the height of the pandemic crisis in Europe. Since then, Greek debt has become eligible for ECB purchases and the nation is set to receive around 16 billion euros ($18.8 billion) in grants from the EU’s recovery fund.

It caps a dramatic turnaround for Greece’s bond markets, which saw yields soar above 40% during the height of the sovereign debt crisis less than a decade ago. Yet the nation isn’t alone among Europe’s periphery to have performed strongly since the coronavirus crisis. Central bank stimulus is inflating the price of safer assets and driving investors into higher-yielding and riskier securities.

The yield on Italy’s 10-year note is whiskers away from an all-time low. Irish debt gained on Thursday after demand at a government bond auction rose to the highest level in six years.

ECB Boost

The rally is “consistent with the collapse in credit and term premia across European rates markets, and with rising expectations of ECB easing,” said Antoine Bouvet, senior rates strategist at ING Groep NV in London. “The trend is your friend.”

The Greek government expects public debt-to-GDP will be close to 200% in 2020 before declining again in 2021. The draft budget presented Monday sees growth of as much as 7.5% in 2021 after a sharp decline of 8.2% this year, mainly due to a forecast 30.4% increase in investments.

A further boost could come later this year should the ECB decide to enlarge its pandemic bond-buying program. Goldman Sachs Group Inc. expects a 400-billion-euro increase in December.

Shallow Market

Greece’s debt is still rated junk by the three main credit rating agencies and trading volume is just a fraction of what it was before the financial crisis.

Bank of Greece data show turnover on the electronic secondary securities market, or HDAT, totaled 4 billion euros last month, compared with a peak of 136 billion euros in September 2004. That can leave the market vulnerable to price swings.

Still, the rally is likely to keep going, according to Danske Bank A/S’s chief strategist Piet Christiansen, given that central banks continue to suppress borrowing costs in the face of the pandemic.

“Low volatility just makes Greece an attractive case in finding still-positive yielding instruments,” he said. “There’s no obvious trigger that should stop this.”

Greece’s two-year bond yield also fell to a record low on Thursday, dropping as much as four basis points to 0.104% before trimming its decline.

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