Chart of the Week
October saw S&P reinstate Greece to its former investment-grade glory. The rating agency upgraded the country’s long-term credit rating from BB+ to BBB- with a stable outlook. For Moody’s and Fitch, Greece remains in high yield territory and therefore a risky debt market, while Scope and DBRS restored Greece to investment grade in August and September respectively.
The rehabilitations are the result of a long economic and social recovery process since the sovereign debt crisis of 2011–12. As a result, the risk premium on Greek bonds has narrowed significantly over the period. On 22 November, Greece’s 10-year bond yield was 3.76%, 119 bps above the German 10-year bond yield of 2.57%.
OUR ANALYSIS
The spread on Greek 10-year bonds is now lower that Italy’s but higher than Spain’s. Underpinning the positive momentum is Greece’s dynamic growth (+5.6% in 2022), which should continue to outpace the eurozone average throughout 2023. An improving debt-to-GDP ratio also puts Greece in a more favourable light. From a peak of 189% in 2020, S&P expects it to fall to 146% by the end of this year. While the burden remains high, the improvement is substantial. On the unemployment front, the decline to 10% reflects progress in socio-economic development.
Aside from this year’s positive momentum in Greek sovereign bonds, Greek bank bonds are performing admirably. The upgraded sovereign credit rating removes a drag on Greek banks’ credit ratings and trims the valuation haircut applied by the ECB on Greek bank collateral. More broadly, Greek banks have cleaned up their balance sheets, improved their loan provision coverage and bolstered their capital.
***
Written on November 24, 2023. This is not an investment advice. Opinions subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/eurozone-what-is-happening-with-productivity/
***
This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – a simplified joint stock company with share capital of €14,487,500 – Paris Trade and Companies Registry No. 352 213 599. 25, RUE DE COURCELLES – 75008 PARIS, FRANCE
