Greek yields dip on upgrade

Greek government bond yields dipped yesterday after Fitch became the second ratings agency to upgrade it to “Single B” status, marking another milestone in the debt-laden country’s slow journey away from default territory.

The ratings agency upgraded Greece’s long-term foreign-currency issuer default ratings to B- from CCC late on Friday, citing reduced political risk and sustained economic growth.

Short-dated Greek government bond yields hit 3.25% at one stage, close to their lowest since 2009, a level hit earlier this month.

The yield on Greece’s 10-year government bond dropped five basis points in early trade to 5.58% before trading flat.

“Greece is still a credit that is risky and volatile, but at least it’s now not one step away from default but two steps away,” said DZ Bank strategist Daniel Lenz.

“I think an upgrade was largely priced in so you won’t see a huge amount of spread tightening — but still, it’s possible that some high-yield investors would consider a small investment in Greece now.”

S&P upgraded the country to B- a month ago. Moody’s still has a Caa2 rating on the country.

While Greece has been grappling with gargantuan levels of debt and has had to put stringent austerity measures in place in exchange for EU funds, the country was given a boost in June when eurozone governments agreed to release €8bn in aid.

In addition, Greece regained bond market access last month after a three-year hiatus, selling €3bn of five-year bonds.

The Greece upgrade also boosted sentiment towards the eurozone’s other lower-rated bond markets, pushing Portuguese yields to fresh one-year lows at 2.74%.

Other south European government bonds also outperformed the rest of the market yesterday, with Italian and Spanish 10-year borrowing costs dropping one-to-two basis points.

The yield on Germany’s 10-year government bond, the benchmark for the region, was unchanged at 0.4%.

Bond investors are focused on Thursday’s meeting of central bankers at Jackson Hole, Wyoming, despite ECB chief Mario Draghi unlikely to deliver a new policy message.



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