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Even in a good day for European markets, Greek bonds are shining.
The country’s main traded 10-year bond has rallied to its best level since 2014 today – pushing the yield to its lowest since before the election of its current left-wing government after Athens smashed through one of its key bailout targets.
Greece’s primary budget surplus – which measures the country’s public finances when excluding debt repayments – hit 4.2 per cent last year, swinging dramatically from a deficit and far outperforming a creditor target of 0.5 per cent for 2016.
The 4.2 per cent figure, which is calculated according to Greece’s bailout terms, was confirmed by the European Commission on Monday. It was widely expected after Athens has boasted climbing tax revenues and major cutbacks on government expenditure over the last few months.
The fiscal outperformance, coupled with market relief at France’s first round election result, has driven the 10-year bond yield down 16 basis points lower to 6.2 per cent today – its lowest level since November 2014 (yields fall when a bond’s price rises).
Greece’s primary budget target has become a key battleground between creditors in the EU and the International Monetary Fund who have been tussling over the fate of country’s three-year bailout programme.
As it stands, Greece is committed to hit a 3 per cent surplus target for a decade after the end of its rescue in 2018. The IMF has pushed for this to be reduced in order to avoid imposing too harsh an austerity burden on an economy which has shrunk more than 25 per cent since 2008.
The fund has warned the current fiscal outperformance is based on one-off factors such as higher tax revenues and is not sustainable over the long run.
But commenting on the figures today, a spokesman for the European Commission said Brussels was “confident” Greece could hit a 1.7 per cent surplus target for this year and a 3.5 per cent figure in 2018.
Bailout monitors from the EU and IMF have returned to Athens today to prepare the groundwork that will allow them to release around €6bn to the Greek economy before a summer repayments crunch.
Separate figures from Eurostat toda showed Greece’s overall public finances were also in healthy shape, boasting a surplus of 0.7 per cent. That is just shy of Germany’s 0.8 per cent and the fourth best in the 19-country eurozone.
The stats reveal the Syriza’s finances are now €11bn healthier than a year ago, when the black hole in the public finances was over €10bn. Revenues now exceed spending by €1.28bn.
Chart via Bloomberg