Last Friday’s upgrade by Moody’s opened up Greek securities to the markets of the Persian Gulf and further East, and to further inflows of up to 8 billion euros for Greek bonds. It is also expected to lead to a reduction in the Greek spread, that is the difference between the cost of borrowing in Greece and Germany.
Besides the symbolic importance of Moody’s decision – which closes the cycle of the economic crisis – to put Greece back among “investable” countries also has a substantial positive impact by increasing the audience for Greek assets.
The positive effect of the shift in mood already started being felt in Greece’s most recent foray into the markets, last Thursday – with the reopening of two existing securities (the 15-year bond issued in 2023 and the 30-year paper of 2024), with a parallel exchange of two bonds maturing in 2026 – a significant number of the 430 who submitted a record €56.5 billion in total offers were new investors.
There was significant demand from new social security and pension funds, insurance companies and central banks in countries that do not customarily take an interest in Greece paper, while there was even an investor from South Korea for the first time in many years.
Demand was also higher compared to the past from investors from the Netherlands, Portugal, Norway and Spain.
This increased and new demand came based on the expectation that sooner or later Moody’s would also give Greece investment grade – as actually happened a day later.
According to competent sources, the most important thing is that the upgrade by Moody’s, which is together with S&P the largest ratings agency and the one that long-term investors look at the most, opens the prospect for investors from the Far East and the Gulf countries to invest in Greek bonds. Investment funds in Japan, South Korea, Hong Kong and Singapore, for example, are enormous in size and a small investment from them in the small market of Greek assets will have a huge impact.
This upgrade by Moody’s, as estimated, will bring new inflows of €4-8 billion in Greek bonds thanks to the fact that Greek securities will be included in more international bond indices, while the Greek spread, which is around 80 basis points today – at 2007-2008 levels – will be further compressed by at least 20 bps and will move to 60 bps against the German 10-year bond in 10-12 months.
The improvement of Greece’s fiscal performance and the outperformance of targets were among the main driving forces behind Moody’s decision, while Greece is committed to ensuring that the upward trajectory continues.
Morningstar DBRS and Scope Ratings already rate the country one notch above investment grade and further good fiscal performance is expected to push the other agencies to make a similar move.
The fact that, as announced by Deputy Prime Minister Kostis Hatzidakis, the new official data will show a primary surplus of 3.5% of GDP in 2024 and, more importantly, that Greece achieved an absolute surplus in the order of 0.2% of GDP – the annual surplus was higher than interest payments (with some estimates even speaking of 0.5% of GDP) – is another very strong signal to the markets and rating agencies.