The new rating round starts on September 6 from DBRS, followed by Moody’s on September 13, Standard and Poor’s on October 18, Fitch on November 22 and Scope Ratings on December 6, 2024.
Expectations are high, as the company’s executive, Colin Ellis, speaking at the Economist’s recent conference, opened a window for an upgrade of the Greek economy to investment grade by Moody’s, avoiding, however, to pre-announce or commit to what the international will do rating agency in September.
Moody’s is the only major house that has not yet given Greece an investment grade rating, but not a few analysts see the upgrade as minor, as the investment community treats Greek assets as if they have already been rated investment grade. .
But those who believe that Moody’s rating, on September 13, is particularly important as Moody’s is the largest in the world, which is why the potential demand in the event of an upgrade for Greek bonds can now even reach 20 billion euros.
Moody’s rating remains at Ba1 (one notch below investment grade) with a stable re-rating outlook.
At the beginning of last August 2023, the first substantial step was taken to upgrade Greece’s credit rating in the investment category.
The German rating agency Scope Ratings, which, however, was not recognized by the ECB (today it is recognized), gave the investment grade to Greece. DBRS followed in September 2023, Standard & Poor’s in October and Fitch Ratings in December of the same year, setting the country’s credit rating at (BBB-).
According to the Bank of Greece, the change in the outlook of the credit assessment of the Greek economy to positive by Standard and Poor’s in April 2023 led to a significant increase in the positions of investment funds in Greek government bonds, in relation to other government bonds in the zone of the euro. This development led to a reduction in the yields of Greek government bonds corresponding to approximately 80% of the fall in their yield differentials against the benchmark German bonds.
These results are remarkable for two reasons. On the one hand, the increase in demand for Greek securities was observed at a time when investment funds were reducing their positions in bonds with low credit ratings.
On the other hand, the decline in Greek government bond yields, largely explained by the increase in the positions of international investment funds, outweighed the upward pressures observed on bonds internationally due to interest rate increases.
Investors had already started discounting Greece’s investment-grade sovereign credit rating upgrade after S&P changed its outlook to positive in April 2023.
This development led to a significant increase in the portfolio positions of international investment funds in Greek government bonds.
The impact of the upgrades continued beyond Q4 2023 and explains a decline in Greek government bond yields of around 20bps. in addition to the reduction caused by the formation of expectations for a reduction in key interest rates.
Thus, their yield differentials against other eurozone government bonds have narrowed significantly.
In particular, the spread of the Greek ten-year bond against the German bond of the same duration decreased in 2023 (by 98 bps to 105 bps) and has remained at these lower levels ever since.
At the same time, the yield of the Greek ten-year government bond fluctuates at considerably lower levels compared to that of the corresponding Italian ten-year bond, already from the second quarter of 2023. In fact, the yields of the Greek government bonds, across the entire range of the yield curve, followed the downtrend shaped by the positive outlook and upgrades made in 2023.
Of course, more recently, the revision of investors’ expectations for key interest rates in the euro area, as well as the spillover effects from the corresponding revision of interest rate expectations in the US, have also exerted upward pressure on Greek government bond yields, mitigating their overall reduction. The Greek State has increased capital raising with a medium-long term duration
from the international capital markets in 2024 compared to the corresponding period of 2023. Bond issues within 2024 had a reduced weighted average yield compared to those of 2023. Recent bond issues have seen a significant reduction in the borrowing costs of the Greek State, which is linked to the upgrade to the investment category, which brings about an increase in demand for Greek securities, especially Greek government bonds, on behalf of international investors. It is also worth noting that the recent issuances of long-term and very long-term bonds, in addition to increasing the weighted average duration of the debt traded in the bond market, also carry a very positive signal, due to strong demand.
Thus, the Greek State can gradually replace short-term debt with longer-term issues, as shown by the reduction of new issues of interest-bearing bills. Specifically, during the first half of 2024, short-term securities (i.e. 3, 6 and 12-month interest-bearing bonds) totaling 8.5 billion were issued (compared to 11.6 billion for the same period in 2023).
Finally, as Greece’s sovereign credit rating upgrades broaden the investment base for Greek government bonds, there is an increase in trading volumes in the secondary market. The average daily value of transactions in the Electronic Secondary Securities Market (SDAT) has been around 81 million weighted average since the beginning of the year, compared to 78 million for the same period in 2023. both domestic and international transactions in Greek government bonds are settled, the average daily value of purchases and sales for 2024 up to the end of May was 519 million, compared to 503 million in the corresponding period of 2023.
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