Behold the great rally in Greek government bonds.

The yield on Greece’s most traded 10-year bond has hit its lowest since the country underwent a private sector bond restructuring nearly five years ago as investors bet Athens’ latest bailout breakthrough can finally pave the way for the start of its economic recovery.

Greece’s benchmark yield, a barometer for the markets’ take on the state of the country after nearly €350bn of bailouts, has slipped five basis points (0.05 percentage points) to a fresh low of 5.49 per cent today.

The 10-year debt has rallied impressively over the last 12 months when the yield was nearly 9 per cent and creditors wrangled over the terms of the country’s debt relief measures. It peaked at 27 per cent back in June 2012.

Greece’s debt market is unlike any other in the eurozone, as most of the country’s outstanding bonds are in the ownership of its creditors in the EU.

Private sector bondholders were forced to undergo a “haircut” on their assets back in 2012, when Greece’s underwent the biggest sovereign debt restructuring in history as part of the country’s second bailout deal.

Having been shut out of international markets since its crisis erupted in 2009, Greece tentatively returned to issuing debt with a €3bn 10-year bond back in 2014. The left-wing government is now increasingly hopeful it can tap investor demand once its current €86bn bailout expires in 2018.

Greek debt still offers investors a juicy return in a world where eurozone yields have been driven to record lows during two years of the European Central Bank’s stimulus measures.

Bondholders will have taken cheer in the latest developments from the country’s bailout talks last week, when Syriza managed to legislate for the reforms it needs to unlock around €6bn in rescue loans this summer. Eurozone finance ministers are likely to approve the disbursal when they meet on May 22.

Brussels and the International Monetary Fund will be hoping the progress will finally kickstart the economy after growth slipped back into reverse at the end of last year.

Quarterly GDP shrank an unexpected 1.2 per cent in the three months to the end of December, while the country’s unemployment rate has remained stubbornly high at 23 per cent.

Although falling yields will have little material impact on the cost of servicing the country’s debt burden, the brighter outlook for Greek assets will encourage creditors that the country can make a full return to the bond markets.

Prime minister Alexis Tsipras has promised Greece will seek to “immediately” begin issuing debt after its rescue deal expires in August 2018.

Read more: FT Alphaville’s Matt Klein on the epic GGB rally

Get alerts on Capital markets when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article