Greece making bond market comeback as yields reach record lows on IMF repayment hopes

EPA-EFE//FOTIS PLEGAS G.

Greece making bond market comeback as yields reach record lows on IMF repayment hopes


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The Greek government’s bond yields were closing in on record lows on 15 April after Greece’s Finance Minister Euclid Tsakalotos said a deal to repay International Monetary Fund loans is imminent.

Tsakalotos conveyed Greece’s intention to repay some of its expensive IMF loans during a meeting with the fund’s managing director, Christine Lagarde, on the sidelines of the Spring Meetings of the Washington-based lender and the World Bank.

Screenshot 2019-04-15 at 17.15.04

The IMF received the Greek request for an early payoff positively and, according to Tsakalotos, it will “soon be submitted officially” to Greece’s main lender, the European Stability Mechanism (ESM). Greece’s repayment will hinge on the role the IMF will play in monitoring the Greek economy, which could allow for a more relaxed relationship as the fund is currently engaged in Greece’s post programme monitoring and takes part in all four of the annual missions to Greece by the EU Institutions, namely the ESM, the European Commission, and the European Central Bank (ECB).

The 10-year yield on Greek bonds have declined to 328 bps in April, down from 373 bps in March, and 438 bps at the end of 2018, reaching the lowest yield for at least 14 years, within which the Greek bond yield is set skyrocketed to 37% at the peak of Eurozone debt crisis in 2011.

Greece’s benchmark 10-year government bond yield slipped to 3.267%, its lowest since September 2005 and approaching the record low of 3.203%, with five-year yields also reaching a 13-year low of 2.16% late last week.

“With improved sentiment, the picture for spreads should remain supportive with the central bank still on the cautious side,” rates strategists at ING said in a note. “We have had some positive data surprises both in Europe and in China last week, and that takes the edge off the macro fears”. In addition, some positive signals on US-China trade talks and the six-month Brexit extension allow for greater benefits.

According to the IMF, the country has finally entered the growth phase, where it is set to outperform the majority of the countries in the Eurozone. In 2019, GDP is expected to grow by 2.4% much higher than 1.3% growth in the entire Eurozone economy.

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