Greek bonds saw a significant shift in demand in 2024, particularly from foreign investors who had not purchased Greek securities in over a decade.
According to Riccardo Abbona, Managing Director Head of DCM & Risk Solutions, Greece & Italy—Barclays, the new composition of the investor base was confirmed by the addition of 26 new accounts to the list of Top-50 investors for Greek bonds in 2024.
In 2024, given the achievement of an investment grade in 2023, Greece/ODHH made two very successful new benchmark 10- and 30-year OED issues. Through these two syndicated bond issues, Greece raised EUR 4 billion and EUR 3 billion, respectively, a record amount in terms of amounts issued, and at the same time expanded its real money investor base by 30%, having achieved new records in terms of order book size, investor quality and lower borrowing spreads.
In the bond market, we had a record year for Greek banks with €7.7 billion of bond issuance compared to €4.2 billion in 2023. The key factor for this success was the achievement of the investment grade for banks, which contributed significantly to the expansion of investors investing in Greek bank bonds. For example, the new National Bank bond was priced with a 130 bps spread compared to the 330 bps spread of the 2020 issue.
Also important for the overall investment climate in Greece was the very successful 30-year bond issue by ODDH in May. In the corporate sector, we saw a resurgence of Eurobond issuance by Greek companies after a two-year absence, such as PPC, Hellenic Petroleum, and Mytilineos, as European spreads for BB credit ratings are reaching their lowest levels in recent years.
According to Alpha Bank, the Greek government bond index records the second highest total return (after Italy) among Eurozone countries in 2024. The spread between Greek and German 10-year government bond yields stood at 78 basis points on 9 December, a low since 2008.
According to Alpha Bank, the good behaviour of Greek bonds is mainly attributed to the country's favourable fiscal situation, the upgrade of the country's investment-grade credit rating, and the increased risk appetite.
The primary surplus is estimated for 2024 at 2.5% of GDP, and in 2025 it is projected to be at 2.4% of GDP. One point the bank makes is that the country's financing needs are limited in 2025 and are expected to be more than covered by bond issuance.
On the other hand, the trend of the debt-to-GDP ratio remains downward with the average maturity significantly higher (19 years) compared to the rest of the euro area (average 8 years), demonstrating that for the next five years debt refinancing needs are manageable. It should be noted that only a small part of the debt is negotiable, as only 30% is held by the private sector, while 70% is in European mechanisms and bilateral loans.
Therefore, the analysis continues, the lack of government bond supply combined with increased demand due to the favourable fiscal outlook have led to an outperformance of Greek government bonds.
According to the BoE, the effect of the upgrades, stemming mainly from increased demand from international investors, has continued into 2024 and explains the decline in Greek government bond yields by about 110 bps since the beginning of 2023, in addition to the decline caused by expectations of a reduction in key interest rates, which corresponds to an additional 70 bps or so.
Thus, yield spreads on Greek government bonds vis-à-vis other euro area government bonds have narrowed significantly. In particular, the yield spread of the Greek 10-year bond against the corresponding German security stood at around 81 bps on 13 December 2024, around 114 bps lower than its average level in Q1 2023, i.e., before the formation of expectations for an imminent upgrade in the investment grade. Moreover, Greek government bond yields have also declined against other euro area bonds with comparable ratings, such as Italian government bonds (indicatively, the spread between Greek and Italian 10-year bonds was -33 bps on 13.12.2024, compared to -11 bps on 1.1.2023).
The outlook for 2025
There are still several catalysts that could sustain the positive trend of Greek bonds in the coming year. First, the supportive macroeconomic environment, with the continued fiscal outperformance prominent, strengthens the scope for further Greek debt rating upgrades in the next two years, 2025-2026. Moreover, the attainment of Investment Grade, combined with political stability—a key prerequisite for sustaining investor interest—has benefited both the real economy and the Greek capital market.
The government expects further upgrades of the country's credit rating by the rating agencies. The government is trying to send another positive signal to the markets about the Greek economy with its plan to reduce the country's public debt faster, which is in full swing. The policy of early repayment of public debt will continue until 2025. The government within the next year will proceed with the early repayment of EUR 5 billion of Greek Loan Facility loans that would mature between 2033 and 2042.
The main objective of these moves is to reduce the country's public debt faster in the coming years and to ensure that Greece is not the Eurozone country with the highest debt as a percentage of GDP.
According to the projections, public debt is estimated to fall from 163.9% of GDP at the end of 2023 to 154% of GDP at the end of 2024, to be further reduced to 147.5% of GDP at the end of 2025. Taking into account the country's fiscal progress and the growth rates of the Greek economy, the IMF has projected that the debt reduction will amount to 30 percentage points of GDP by 2029.
In 2025, Moody's is expected to upgrade the country to investment grade (the only agency that has not given an investment grade), which will maintain demand for Greek bonds, according to Alpha Bank.
Moody's in September revised the outlook on the country's credit rating (Ba1) to positive from stable, noting the better-than-estimated budget execution and the improvement in the banking sector.
Dimitris Kofitsas, Head of Greek Investment Banking at Goldman Sachs International, speaking at the recent Capital Link conference in New York, said the outlook for the bond market in Greece remains promising despite the abundance of transactions in 2024. This is due to the political stability and higher growth rates of our country compared to other European countries, as well as the recent success of transactions in 2024 that left foreign investors very satisfied.
