Things are looking up for Greece after its recent bailout and a credit rating boost from Moody’s. But stocks and the benchmark bond yield slipped.
Moody’s Investors Service raised its rating on Greek sovereign bonds, but they remain deep in the junk category, and bank stocks remained under pressure Monday.
The yield on the Greek 10-year bond slipped Monday by 20 basis points to 5.3%, according to Bloomberg. According to Tradeweb, a marketplace for institutional bond trades, the yield slipped more than 7 basis points to 5.426%.
On Friday, Moody’s raised its Greek sovereign long-term issuer and senior unsecured debt ratings to Caa2 from Caa3, and raised the outlook to positive from stable. Moody’s had been the harshest of the big three credit ratings agencies, Brown Brothers Harriman notes. Fitch Ratings brought its rating to CCC — equivalent to Caa2 — nearly two years ago and S&P Global has rated Greek government debt at B since January 2016.
Moody’s cited the release of €8.5 billion in bailout money, which “raises the likelihood of further debt relief” from euro-area creditors. Moody’s noted that the creditor review of Greek austerity measures required the government to legislate reform. Moody’s also cited improved fiscal prospects and “tentative signs of the economy stabilizing.” Moody’s writes:
” … The second key driver for the rating action is ” … improved fiscal prospects on the back of 2016 fiscal outperformance, expected to lead soon to a reversal in the country’s public debt ratio trend. The government posted a 2016 primary surplus of over 4% of GDP versus a target of 0.5% of GDP. Moody’s expects the public debt ratio to stabilize this year at 179% of GDP, and to decline from 2018 onwards, on the back of continued substantial primary surpluses …”
But Moody’s emphasized that the Greek economy is still very fragile:
“While it is too early to conclude that economic growth will be sustained, Moody’s expects to see growth this year and next, after three years of stagnation and a cumulative loss in output of more than 27% since the onset of Greece’s crisis.”
The Global X MSCI Greece exchange-traded fund (GREK) slipped 0.3% Monday, while the iShares MSCI Emerging Markets ETF (EEM) was up 0.9%. Greek bank stocks, which are penny stocks with illiquid over-the-counter trading, were mixed. Shares of the National Bank of Greece (ETE.Greece and NBGGY) were up 0.9% Monday, Eurobank Ergasias (EUROB.Greece and EGFEY) was lower by 2.5%, and Alpha Bank (ALPHA.Greece and ALBKY) was up 1.8%. Piraeus Bank (TPEIR.Greece) slipped 1% in Athens trading.
In May, Moody’s maintained its stable outlook on the Greek banking system, but cited problem loans as a “severe challenge” for Greek banks at 45% of gross loans at the end of 2016. Despite this, Moody’s said at the time that it expected banks “to remain marginally profitable in 2017-2018.”
The Greek economy eked out real GDP growth of 0.4% in the first quarter compared to the final quarter of 2016, and was up 0.8% year on year. Inflation picked up in the quarter, but unemployment remained high at 22.9%, and is expected to remain at near 22% this year and 19% in 2018, according to FactSet.