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Greek yields hit lowest level since 2009 but fourth bailout isn’t excluded

Key Points
  • Without significant debt relief, analysts expect a fourth bailout
  • Euro zone promised debt restructuring in 2018, once Greece concludes the ongoing program
Louisa Gouliamaki | AFP | Getty Images

Greece's 10-year borrowing costs fell to their lowest level since 2009 on Monday after a rating upgrade from Moody's.

However, analysts doubt that Greece will stop becoming an economic problem for the European Union and don't exclude the possibility of a fourth bailout.

The benchmark 10-year yield fell 8 basis points to 5.42 percent, its lowest since December 2009, a few months before Athens received its first bailout program. On Friday, the credit rating agency Moody's raised Greece's outlook from stable to positive and upgraded Greece's long-term issuer and senior unsecured bond and program rating to Caa2 and (P)Caa2. It cited the country's agreement with euro creditors for another disbursement of 8.5 billion euros ($9.5 billion), improved fiscal prospects and tentative signs of the economy stabilizing as the basis for the upgrade.

But Moody's also warned that it is yet too soon to see whether the Greek economy is on a sustained growth path.

"While it is too early to conclude that economic growth will be sustained, Moody's expects to see growth this year and next, after three years of stagnation and a cumulative loss in output of more than 27 percent since the onset of Greece's crisis," the agency said in the rating action decision.

Some analysts go beyond such concerns and believe that Greece will need a fourth rescue.

"Greek debt dynamics remain unsustainable and we believe a 4th bailout program will be unavoidable if no significant debt restructuring takes place," Mizuho said in a note last Friday.

"With key European elections being out of the way next year, it is highly likely that some debt relief will be granted. This is unlikely to take the form of debt forgiveness, but maturities and grace periods will probably be extended further together with interest payment deferrals and lower interest rates," the bank added.

European creditors have said they will make Greece's debt more sustainable next year, once the country concludes its third bailout program.

ESM’s Regling: Confident Greece can have sustainable growth

The sustainability of Greece's debt has been a recurrent headache among euro officials given the pressure from the International Monetary Fund to ease Greece's debt burden to allow for economic growth and the political sensitivities of doing so among EU voters. As a result, Athens won't see any details on debt restructuring before the German elections later this year.