Greece’s outlook is the best it’s been for a long time. Investment bank UBS pointed out in a recent note that Greece’s economy has made many steps in comparison with the recent past, when in 2015 Athens failed to repay an instalment to the IMF on time. Since then, adds UBS, unemployment has fallen to 18% from 28%, and the economy has rebounded with exports moving steadily higher.
“Greek government bonds have produced satisfactory returns in the current year,” says Mark Haefele Chief Investment Officer at UBS Global Wealth Management. UBS considers that both the general political climate along with the large cash buffer will play an important role of stability in the market, adds Haefele.
The economy has been growing steadily for the last 11 quarters and becoming more export-oriented. Jobs are being created, while key economic sentiment indices have improved. Yields on Greek government bonds have also fallen sharply.
Bonds have an inverse relationship to interest rates – when bond prices increase, yields drop. In November, the yield on Greece’s 10-year bond fell to a low of 1.18%.
Greek bonds are also benefiting from improved economic conditions in Europe and a global hunt for returns amid vanishing yields on higher-rated debt.
“Recent developments in the bond markets have been particularly encouraging, with a significant drop in bond yields,” says Bank of Greece Governor Yannis Stournaras.The improved outlook, combined with a debt relief deal Greece reached with creditors in June 2018, has prompted a slew of upgrades on Greek debt by credit rating agencies. In March 2019, Moody’s improved its rating on Greece by two notches, from B3 to B1, citing the reforms undertaken and a growing economy.
“The reform programme appears firmly entrenched, and reforms implemented are starting to bear fruit. A strengthening economy in conjunction with creditor surveillance should further reduce the risk of reform reversal. The track record of strong fiscal performance is now firmly established and is likely to be sustained, as most of the fiscal improvement is due to structural measures,” says Moody’s.
“Public debt sustainability is materially enhanced over the medium term by June 2018’s debt relief package. The sovereign has successfully re-established market-based funding, supported by a very large cash cushion and strong creditor support,” added the report.