BRIEF RALLY FOR GOVERNMENT BONDS IN A HIGHLY VOLATILE ENVIRONMENT
October was characterized by significant volatility in the domestic bond market. The downward trend of Greek government bonds in previous months reversed sharply towards the end of the month without, however, maintaining this momentum in the first 10 days of November. Specifically, in October, the Greek Government Bond Index recorded gains of 1.17%, reaching 557 points, with the weighted yield to maturity reaching 4.04%. Conversely, in the first week of November, the index did not continue the strong rise recorded at the end of October and remained stable at around 556 points. In an environment of rising interest rates and high uncertainty in the government bond markets, the Public Debt Management Agency proceeded with the reissuance of the 5-year bond with floating coupon payments (Euribor + 1.23%) to raise €750 million with participation restricted to primary dealers only (i.e. financial institutions).
The brief strengthening in the domestic government bond market was evident for all maturities, resulting in a downward shift in the interest rate curve by around 20-30 basis points (bps) for maturities of 5-10 years, while for longer maturities the decline did not exceed 15 bps. In addition, the credit risk, as reflected in the interest rate spread of Greek and German 10-year bonds, recorded a significant narrowing by 28 bps compared to the previous month, reaching 248 bps at the end of October. However, according to our quantitative assessment model of the 10-year spread, downside risks remain significant, while the fall in the PMI and ESI sentiment indicators in October drove the ‘fair’ value for the spread higher to 260 bps.
Despite the stable performance of Greek government bonds, uncertainty as the economy goes through an election period, the risk of fiscal imbalances and the difficult economic environment worldwide continue to preoccupy markets. In this context, closing the rating cycle for the year, S&P affirmed the credit rating at BB+ with a stable outlook on October 21, following closely the actions of the other rating agencies.
The corporate bond market continued its downward path in October, with the absence of new issues reflecting the uncertain environment that prevails as borrowing costs increase. Specifically, the Corporate Bond Index registered a marginal monthly drop of 0.2%, closing the month at 134.9 points. Accordingly, the weighted average yield of the index at the end of the month closed at 5.15%, 23 bps higher compared to the corresponding period of the previous month. Regarding the returns on the individual member bonds of the index, the picture was mixed, with Frigoglass’s bond maturing in 2025 registering a strong fall of 21%, while the best performance was recorded by Lamda Development’s bonds maturing in 2027 and AEGEAN’s maturing in 2026 with monthly returns of 3.17% and 3.12%, respectively.