Greek Bond Decline Expected to Reverse, Citigroup Research Suggests

Greek Bond Decline Expected to Reverse After Auction, Citigroup Research Suggests

Greek bonds experienced a decline compared to Italian bonds following the announcement of a small-scale auction of 4.25% bonds due in June 2033. However, Citigroup Research suggests that this underperformance may reverse after the auction concludes.

The auction, with a planned value of up to €200 million, resulted in Greek bonds recording a lower performance of around 8 basis points (bp) compared to Italian bonds. Despite this, Citigroup Research analysts, Aman Bansal and Soumesh Dutta, believe that the underperformance could be overturned once the supply is removed.

In their research note, Bansal and Dutta highlight the potential positive impact of the Fitch rating decision on December 1st. They suggest that if the rating is upgraded, Greek bonds could qualify for inclusion in the Bloomberg Barclays bond index, which could further contribute to the reversal of the underperformance.

S&P Global Ratings recently upgraded the credit rating of Greek bonds, further adding to the prospects of inclusion in the bond index. However, it is important to note that the market may have already priced in this possibility.

Overall, the future performance of Greek bonds is expected to be influenced by the outcome of the auction and the Fitch rating decision. The underperformance compared to Italian bonds is anticipated to reverse once the auction concludes, with the potential upgrade of the credit rating playing a significant role. It is crucial to consider that the market may have already factored in the possibility of inclusion in the Bloomberg Barclays bond index. The removal of supply in the auction is expected to be a key driver in the reversal of the underperformance.

Key Points:

• Greece plans to conduct a small-scale auction of 4.25% bonds due in June 2033.
• Greek bonds declined compared to Italian bonds following the auction announcement.
• Citigroup Research suggests that the underperformance of Greek bonds may reverse after the auction.
• The positive outcome of the Fitch rating decision on December 1st could impact the underperformance reversal.
• If the credit rating is upgraded, Greek bonds could qualify for inclusion in the Bloomberg Barclays bond index.
• S&P Global Ratings recently upgraded the credit rating of Greek bonds.
• The possibility of inclusion in the bond index may already be priced into the market.
• The underperformance reversal could be attributed to the removal of supply in the auction.
• Aman Bansal and Soumesh Dutta are interest rate strategists at Citigroup Research.
• Citigroup Research believes that the underperformance reversal may occur after the auction concludes.

Analysis:

The decline in Greek bonds compared to Italian bonds is expected to reverse after the conclusion of the small-scale auction of 4.25% bonds due in June 2033. The positive outcome of the Fitch rating decision and the potential upgrade of Greek bonds are factors that could contribute to this reversal. However, it is important to note that the market may have already priced in the possibility of inclusion in the bond index. The removal of supply in the auction is expected to be a key driver in the underperformance reversal.

Conclusion:

The underperformance of Greek bonds compared to Italian bonds is expected to reverse after the conclusion of the small-scale auction of 4.25% bonds due in June 2033. The positive outcome of the Fitch rating decision and the potential upgrade of Greek bonds could contribute to this reversal. However, it is important to consider that the market may have already priced in the possibility of inclusion in the bond index. The removal of supply in the auction is expected to be a key driver in the underperformance reversal.