Greece might have a long way to go to recover from its devastating crisis, but things are finally starting to look up after the country’s creditors agreed a deal to unlock the next stage of its bailout programme and help it avoid a default.
Prices for the government’s few publicly-traded bonds hit their highest level in more than seven years on Monday morning, after the bailout agreement prompted Moody’s to upgrade the government’s credit rating and signal further positivity ahead.
Yields on the government’s benchmark 10-year debt, which fall when prices rise, fell 7 basis points (0.07 percentage points) on Monday morning to 5.2550 per cent, their lowest level since 2009.
The government’s shorter-term debt rallied even further, with yields on its two-year bonds falling 14.3bps to 3.597 per cent.
The vast majority of Greek government debt is held by creditors in the EU and IMF, but the yields are still a useful indicator of investor sentiment on the country’s economy.
Moody’s upgraded the government’s sovereign credit rating to Caa2 with a positive outlook at the end of last week. This month’s agreement with its major creditors may have only patched over some of the disagreements surrounding debt relief, but the ratings agency said the agreement sends “a positive signal regarding the future path of the programme”.
Moody’s was also encouraged by the Syriza government’s stronger fiscal position and “tentative” signs that the economy has stabilised after shrinking more than 27 per cent. Moody’s said it expects Greece’s economy to grow for at least the next two years, while the government’s debt to GDP ratio will stabilise at 179 per cent in 2017 before starting to fall next year.
Still, before anyone gets too carried away, it did warn that the country is still far from healthy:
Greece’s economic, fiscal and political risks remain very elevated. Negative scenarios – in particular linked to political events and delays in implementing the agreed measures – are entirely plausible. They are the key reason why Moody’s considers that a Caa2 rating remains appropriate, at least until the means and extent of the promised medium-term debt relief has been fully clarified, the conditions for any such debt relief are clear and a longer and stronger track record of parliamentary and electoral acquiescence in reform implementation has been established.