BackGreece bonds record 47% return; beats world on brighter outlook
Greece, which sparked Europe's debt crisis, is moving towards economic recovery after 6 years of recession
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London: Greek bonds returned almost four times as much as any other government securities this year as the nation that sparked Europe’s sovereign debt crisis moved toward economic recovery after six years of contraction.
Greece’s 47% year-to-date return was the best of 34 sovereign debt markets tracked by Bloomberg. The second-best performer with 12% was Ireland, which exited its international bailout programme on 15 December. Greece may record a primary surplus in 2014 that would qualify the country for additional debt relief under an accord with its creditors, Moody’s Investors Service said on 29 November.
“We are constructive on Greek government bonds," Elga Bartsch, chief European economist at Morgan Stanley, said at a briefing in London on 2 December. “The gross domestic product (GDP) should stabilize and then start to grow. They will get some additional help," she said.
Greek assets are winning fans as fixed-income, currency and derivatives markets show the crisis that gripped the euro area from 2009 is finally fading.
With European Central Bank (ECB) president Mario Draghi sticking by his pledge to backstop the region, investors are returning to Greek securities, even after the nation’s financial trauma caused private bondholders to write off more than €100 billion ($138 billion) in 2012.
Future Gains
“Greece will return to bond markets next year and won’t need a new bailout agreement," Prime Minister Antonis Samaras said in an address on public television in Athens on Monday. “A new wave of reforms will be implemented in 2014 to boost economic competitiveness," Samaras said.
Japonica Partners & Co., a US investment firm that offered to buy as much as €4 billion of Greek government bonds this year, expects its holdings to surge in value in 2014. “It paid as little as 11.4% of face value for the securities it purchased and expects the debt to be valued at more than 85% by next year," founder Paul Kazarian said on an 3 October conference call. Japonica said it’s now one of the largest holders of Greek government debt, without disclosing how much it acquired.
Further gains would also benefit Capital Research and Management Co., the Los Angeles-based fund manager, and Schroder Investment Management Ltd, which were among the biggest owners of the securities among asset managers and funds, according to data compiled by Bloomberg based on filings as of September.
Two Bailouts
Greece’s government debt is too illiquid and the nation needs to boost its credibility before larger investors will buy the securities, according to Iain Stealey at JP Morgan Asset Management, which oversees about $1.5 trillion.
The country has received two international bailouts, and its ratio of debt to GDP will be about 176% this year, according to European Commission forecasts. It swapped existing securities for new bonds maturing between 2023 and 2042 as part of the world’s biggest sovereign-debt restructuring in 2012.
“Ultimately, there’s quite a small market, it’s below investment grade and there’s a debate at the moment whether it should be an emerging market," Stealey, a money manager for JP Morgan Asset Management’s international fixed-income group in London, said in a 16 December telephone interview.
“We’d need to see some form of stability there and probably would need to see them coming back to the market with some kind of steady issuance schedule."
World Beaters
Trading of Greek government debt increased to the most this year on 10 December, with daily volume on the HDAT electronic secondary securities market totalling €77 million, data from the Bank of Greece show. Trading was €40 million in the entire month of December 2012 and zero in October 2011, based on the data.
Greek 10-year yields dropped to 7.83% on 8 November, the lowest since June 2010. They were at 8.41% at 4:27pm London time, from 11.9% at the end of last year. The price of the 2% security due February 2023 was 67.025% of face value, up from 48.45%.
The euro has climbed 4.7% against the dollar this year as the region’s debt crisis faded, rising versus all its 16 major counterparts apart from the Danish krone.
Greek securities are beating international peers for a second year after returning more than 100% in 2013, according to the Bloomberg World Bond Indexes. Last year’s rally was built on the decision of a coalition government to honour commitments made under terms of Greece’s international bailouts, diminishing the risk the country would exit the 17-nation euro.
Implied Rating
Moody’s raised the country’s credit rating by two levels last month, citing progress in fiscal consolidation. Fitch Ratings increased its score for Greece to B- in May, six steps below investment grade.
The credit-default swaps on Greece signal a Caa1 rating, two levels higher than Greece’s actual Caa3 grade, and seven below investment grade, according to Moody’s Analytics. The contracts have not actively resumed trading after being settled in March 2012 and they’re not among the top 1,000 entities tracked by the Depository Trust & Clearing Corp., which runs a central registry for the market.
The nation’s bonds signal a Ca rating, one level below Greece’s actual Caa3 grade.
Greek Election
Spyros Politis, chief executive officer of Athens-based TT- ELTA AEDAK, which manages the equivalent of $523 million, says he’s positive about owning Greek government debt, while viewing the securities cautiously until after elections for the European parliament in May.
The main opposition Syriza party, which wants to renegotiate terms of Greece’s international loan deals, has 22% of support in terms of voter intentions for the election, according to a MRB poll for Real.gr published on 16 December.
“The performance of Greek bonds this year reflect a combination of political risk and economic achievement," Politis said in a 19 December telephone interview.
“Progressively the trust of foreign investors, predominantly, has been cemented. The lack of any bad signs made the Greek bonds particularly attractive." Bloomberg
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