Greek Bond Market Star Performer in Euro Zone

The Greek bond market has been the star performer in the euro zone in the past three months as confidence grows that Athens can turn round its economy.

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A combination of better data than expected, China’s pledge to buy the country’s bonds and hopes that international bail-out loans will be extended have boosted investor sentiment.

Greek 10-year bond prices have jumped 10 percent, with yields falling 13 percent, since June 30. The Greek bond markets have also recorded total returns of 8 percent since June 30, according to iBoxx indices. It has comfortably outperformed the rest of the euro zone in price, yield and total returns.

It is the first time the Greek bond markets have recorded positive total returns and seen prices rise over a three-month period since the euro zone debt crisis started last September.

Ireland has been the worst performing market since June 30, with 10-year prices falling 6 percent, yields rising 25 percent and total returns of minus 3 percent.

Analysts say Athens has a long way to go to restore its economy as debt remains high, its economy is in reverse and public sector protests increase.

But in the past two weeks, the Greek bond performance has been impressive, with 10-year yields falling about 1.5 percentage points. They have dropped from 10.42 percent on September 24 to 8.94 percent.

Greece’s cost of borrowing over Germany, Europe’s benchmark economy, has also fallen to a premium of 7 percentage points for 10-year debt, the lowest level since June 22.

Gary Jenkins, head of fixed income at Evolution Securities, said: “Greece has surprised investors due to better-than-expected data. China saying it will buy Greek bonds and the IMF suggesting it will extend loans has helped too.”

The growing confidence in Greece was underlined on Tuesday by the success of a short-term debt auction where the cost of borrowing fell by more than a quarter of a point for six-month money compared with the previous sale last month.

Athens issued €1.17 billion of six-month bills at a yield of 4.54 percent compared with 4.82 percent at a previous sale last month. The amount borrowed was also higher than the planned €900 million.

Petros Christodoulou, Greece’s debt manager, said: “There was a marked drop in the yield... it was a very positive outcome.”

Greece is still in effect shut out of the markets for longer-term debt as the borrowing rates it would have to pay are too high.