JP Morgan: In the investment stage, Greece in the second half of 2022

Of Eleftheria Kourtali

JP Morgan declares overweight in Greek bonds for 2022 and sees a very probable return of Greece to the investment tier in the second half of 2022. As noted in the new strategy and outlook report for next year, Greek and Italian bonds are the favorites of trades from the region, with the country’s credit rating remaining on an upward trajectory in the near future.

Specifically, he points out that in terms of eurozone bonds in general, he maintains a constructive attitude in the first half of 2022, expecting little pressure on spreads in the second half of the new year. He estimates that the spread of 10-year Italian bonds against German bonds will move to 100 basis points by mid-2022 and then increase to about 120 basis points. by the end of the year. Of the countries, it prefers Greece and Italy for overweight positions in the region and Iceland and Belgium in the core countries of the eurozone, as he notes. One trade he proposes is the long positions in Greek bonds compared to the bonds of the rest of the region.

JP Morgan notes that Cyprus, Greece and Portugal received upgrades in their ratings in 2021 which stated in their respective reports that the risk of a negative rating for euro area countries is generally low in the short term due to historically low due to the ECB’s supportive attitude and EU actions. second half of 2022.

Especially in the case of Greece, the American bank believes that the market values ​​discount, given the uncertainty regarding the inclusion of Greek bonds in the quantitative easing programs that will be valid after the end of the PEPP.

According to JP Morgan’s baseline scenario which is the inclusion of Greek bonds in any program implemented after PEPP, and based on the prospect of strong economic activity and the stable political landscape, Greece could potentially trade with much lower spreads in the index. sovereign risk as it did for much of 2021.

Specifically, it estimates that the spread of the Greek 10-year bond against the German bond will decrease from current levels of 151 basis points to 125 basis points in the first quarter of 2022, to 110 basis points in the second quarter, to 115 basis points in the third quarter and to 120 basis points in the last quarter of 2022, marking the largest drop in spreads across the eurozone.

At the same time, it sees the debt-to-GDP ratio fall below 200% in 2022 and to 197% and estimates that growth will move to 5.2%.