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Société Générale: Further upgrades of Greece are coming – In investment grade until the first half of 2023

Her Eleftherias Kourtali

Société Générale expects normalization of Greek bonds after the intense turmoil they have received recently, further upgrades of Greece by rating agencies and recovery of the investment grade until the first half of 2023.

As the French bank points out in a new report, spreads across the eurozone have widened recently, possibly due to growing volatility, the ECB’s aggressive tone, concerns over the pandemic situation in China and the energy crisis. All this reinforced the Société Générale view that increasing market volatility, especially in view of the end of the ECB’s net bond purchases, would lead to an increase in spreads. According to him, Italian bonds risk higher underperformance, an aggressive ECB, a high-risk environment and growing net supply. Greek bonds have also come under pressure, which is certainly linked to supply and liquidity, with the Greek curve over 5-15 years reversing, but is expected to normalize soon.

Greece recently received another upgrade, with S&P “raising” its rating to BB + with positive outlook, as the Société Générale expected, with the country just one step away from the investment grade area. Despite the effects of the crisis in Ukraine, the upgrade was supported by the continuous improvement of the efficiency of the government and the financial resilience of Greece. “We expect Fitch to follow suit and upgrade Greece on July 8, with the country regaining its investment position by the first half of 2023. As net asset purchases by the ECB are likely to expire in the third quarter, The investment position in 2023 will not have much impact on the ECB markets. However, achieving this milestone will allow many more funds to include Greek bonds in their portfolio and therefore support Greek securities prices. long term.

According to the French bank, Greek bonds have been hit harder than other eurozone bonds by the normalization of monetary policy, with the end of PEPP markets weighing on their demand. However, as PEPP entered the reinvestment phase in April and as the ECB’s current bond-buying program does not include Greek bonds, they should henceforth be less affected by any change in policy “normalization”. In the future, market movements are likely to depend on supply conditions and liquidity. This year, Greece issued a 10-year bond worth 3 billion euros in January and “opened” the 7-year issue in April, raising a further 1.5 billion euros. To meet the remaining upper issue target of around 7 billion euros for 2022, Greece will most likely focus on bonds in the long run, especially 15-20 year bonds and a 10-20 year green bond.

Finally, Société Générale refers to the reversal of the Greek curve. As he notes, the issue of the 5-year bond has pushed yields to 5-year higher, while the larger end of the curve has been less affected. Specifically, the spreads of Greek bonds in the part of the 15 to 20 year curve have decreased by 70 basis points since March 1, leading to a reversal of the curve. 5-15 year spreads usually subside when markets price a negative scenario for the economy, which the French bank does not believe to be true. Thus, he predicts that the Greek curve of 5-15 years will stabilize and return to positive ground, but time will depend on liquidity in the market.

Source: Capital

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