Greek government bonds have been issued for the first time last week since 2014. On 24 July 2017, investors have rallied to take part to the €3bn new 5-year Greek bond issuance.
This return to the market is another small step in the long road back to financial health, according to Sandra Holdsworth (pictured), co-manager of the Kames Absolute Return Global Bond fund.
The European sovereign crisis, which has nearly pushed Greece out of the eurozone through the Grexit process, has led to a restructuring of the country’s debt.
Holdsworth observed that around half of the new issuance was purchased in exchange for existing debt but that a few new investors have subscribed to the issuance, “with some at least likely to be from outside Greece.”
“In a small way this should help the Greek banking system by injecting funds from outside Greece into the country, and allow the amount borrowed under the Emergency Liquidity Assistance (ELA) programme to continue to reduce. Something that is probably necessary before the 2015 capital controls are removed. Since 2015 however, many changes have occurred in Greece and it may surprise some that the outlook is looking much more favourable. Economic growth has turned positive helped by a firm Eurozone economic performance,” said Kames’ portfolio manager.
If Holdsworth stressed that Greece’s fiscal position has improved, she acknowledged that the enormous remainder of Greek government debt may be unsustainable in the long run. Where are we standing then on Greek govies?
Kames’ portfolio manager argued that “Greece is still rated at a worrisome B- at best but at least it is going in the right direction.”
“For this reason Greece offers a credit premium of nearly 5% over German debt in its recent issuance. This compares with 1.3 % that Portugal offers, which is the next ‘worst’ of the major countries that are active in the debt markets and compares reasonably with corporate debt of the same credit rating,” she said.
Holdsworth added that the credit trends do only concern Greece as the outlook for countries of the Piigs group is improving.
Ireland and Spain’s credit ratings have been upgraded while Portugal’s rating has remained stable but Fitch has upgraded their outlook to Positive. Holdsworth recalled that Italy has been the only country within the Piigs group whose credit has been downgraded.
“But even in Italy, the outlook looks for the short term reasonably sanguine. The revival in economic growth and the long awaited action regarding the banking system should mean stability for the foreseeable future. The good news can continue,” she said.