The upcoming replacement of 20 bonds – issued during the 2012 PSI debt restructuring and coming to maturity between 2023-2042 – with five new bonds, so as to increase liquidity and reduce the spread, seems to be pressuring the returns of Greek bonds, resulting in an upward price trend.
The cost of borrowing for Greece has thus returned to the levels of December, 2009.
It is characteristic that the return of Greek 10-year bonds is receding to around 5.06 percent, with a 10 percent drop in just the last two months (when bond yields fall, prices rise).
The return of the 2-year bond is 2.89 percent, with the five-year bond at 4.3 percent. The 25-year bond yield has dropped below six percent for the first time in three-and-a-half years.
Those returns are clearly better than those on Greek bonds slightly before the summer’s trial return to the markets, which was preceded by a substantial fall in the spread.
Opportunities hard to find
Meanwhile, opportunities in the international bond market will not be easy to find in the coming years, due to the impending budget cuts of central banks, which printed 15 billion euros in free money to bolster their economies after the 2008 crisis, and also due to high American interest rates.
It should be noted that the Greek market is shallow, as bonds worth only 40 billion euros out of the total 320 billion in Greek debt are traded freely on the secondary market. At the same time, Greece’s official borrowing will amount to 262 billion euros (150.4 percent of the 2016 GDP).
In this framework, the impending swap of the 20 bonds with a nominal value of about 30 billion euros, which will shrink the secondary market to just a few reference issues, aims to the issuance of fewer reference bonds, of about 3-5 billion euros each, in order to increase the marketability and depth of the shallow Greek market.
Certain funds which are seeking higher returns want to buy Greek bonds, despite fears about whether Greece can stand on its own after the end of the bailout programme in August.
In that context, the prospects for Greek bonds, which produced the greatest profits in Europe this year, appear attractive. All sides seem determined to resolve the Greek problem, even if a “hybrid” oversight mechanism is required