Spread, Greece better than Italy: less risky government bonds


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And in the end overtaking was. Thursday, November 7th, the 10-year Athens bond rates on the secondary market fell during the day to a lower level compared to BTps of equal duration. It hadn't happened since 2008, since before Greece collapsed into a deep sovereign debt crisis which it then faced with three rescue plans (Troika loans conditional on the fulfillment of socially tear and blood reforms). But the overtaking of Greece over Italy was now in the air for a few days.

At the end of the session, Italy returned to the advantage of 2 basis points (1.25% against 1.27%). But we're basically there. Indeed, as shown by the spread on the debt curves (over several durations) besides the 10-year intraday overtaking, Greece closed its last session in advantage over 5, 7 and 15 year maturities. These are a few basis points but certainly news, considering that: 1) Greece has a rating (BB-) four steps lower than the Italian one (BBB); 2) at the beginning of the year Italy exhibited an advantage of 170 points on the 10-year side.

How come Italy has squeezed this gap in just a few months? It must be said that in the meantime the yield on Italian securities has not deteriorated. Indeed it has dropped significantly (from 2.8% to 1.25%, with a peak of 0.8% in August). But the Athens rate fell even more which since January has fallen from 4.38% to 1.27%.

"In a world where many bonds run at negative rates and where it is difficult to find acceptable yields on the bond market, investors have returned to reconsider Greece as an opportunity – explains a trader -. Especially after the July 7 Athens elections that led to the government the center-right party leader New Democracy, Kyriakos Mitsotakis, and sanctioned the departure of Alexis Tsipras. Mitsotakis has said since the favorable election campaign to neo-liberal policies, the same as those enjoyed by markets and international investors. And that explains everything else ".

What we have seen in Greece is clear evidence that the policy influences the trend of government bonds at this stage, more than the rating or the immediate prospects for GDP growth or the inflation trend. The same policy that has made the BTP returns go a long way.

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