Bond upheavals due to Ukraine – Exceeded 2.6% the Greek 10-year

The bond market is also showing significant instability, against the background of the escalation of the crisis in Ukraine.

The Russian Foreign Minister’s conversation with President Putin, which leaked early in the afternoon, which shows a “window for finding a diplomatic solution”, did not reassure the markets.

In addition to the threat of a war that is stifling oil supply and hampering economic growth, the emerging turn of central banks has been an additional source of instability for markets.

Inflation at record highs strengthens speculation that the US Federal Reserve will choose an aggressive cycle of interest rate hikes and that the European Central Bank could also raise interest rates this year.

Under the pressure of the above, the yield of the Greek ten-year bond today exceeded 2.60%.

According to an analysis by Piraeus Bank, the increase of the 10-year spread margin is more worrying compared to the performance of the German 10-year period as in January it strengthened by 37 basis points to 188 bp after a decrease of 10 bp in December.

In addition, in the first week of February, the 10-year spread strengthened to 231 bp, reaching the levels of May 2020, ie the period of the introduction of Greek bonds in the PEPP program of the European Central Bank (ECB).

With the markets having started pricing the termination of the PEPP program, even with positive terms for Greece announced in December last year, the valuations according to the quantitative model remain low compared to the current level.

Specifically with the data of January, a “fair” price for the spread is at 142 bp, supported mainly by the high rates of economic activity but also the relatively low level of volatility in the international bond markets.

However, according to the Risk Balance Index, the probability of higher spreads in the future (negative scenario for Greek bonds) has gradually increased since November 2021 compared to the probability of lower spreads.

Source: Capital

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