Nov 6, 2019 - Economy

Greece's incredible bond rally

A Greek statue holding a dollar sign.

Illustration: Sarah Grillo/Axios

The S&P 500 has enjoyed a strong year and equities around the globe have delivered solid returns, but every one of the world's major stock markets has underperformed 2019's grand champ: Greek government debt.

Why it matters: Long-dated Greek sovereign bonds have been one of the best-performing assets in the world in 2019, having delivered returns more than double the S&P 500 through Tuesday.

Background: Left for dead after a near-collapse of the economy, a debt and currency crisis, and a series of bailouts as recently as 2015, Greece is now so attractive investors are demanding less of a premium to hold Greek government bonds than comparable debt from the United States.

What they're saying: "Greece appears to have put the bailout era behind it," Joseph Trevisani, senior analyst at FXStreet, tells Axios in an email.

  • "Athens exited the last bailout more than a year ago, ended capital controls on September 1st and received an outlook upgrade to positive from [ratings agency] DRBS. Since Greece is no longer the problem child of the EMU, it's rates are moving lower to accompany the rest of the euro zone."
Data: FactSet; Chart: Andrew Witherspoon/AxiosSocial Image
Data: FactSet; Chart: Andrew Witherspoon/AxiosSocial Image

By the numbers:

  • Yields on Greece's 10-year note traded at 1.2% Tuesday — a far cry from their all-time high levels in March 2012 0f over 40% in the midst of the European debt crisis — and are now 65 basis points lower than yields on the U.S. 10-year Treasury note.
  • The real winner for investors has been Greek 20-year bonds, which have delivered a whopping 47% total return year-to-date, according to FactSet.

While the yield on Greek bonds is low by historical standards, it is still significantly higher than similar government bonds from other countries in the eurozone and is attracting major inflows thanks to investors' continued search for yield.

  • German 10-year government bonds have a yield of -0.31% and bonds from other European economies like France and Sweden hold negative yields out to 10 years as well.

What's happening: Thanks to the ECB's recently restarted bond-buying stimulus program, declining inflation and debt, and a new center-right government in the country, Greece's 10-year bonds have seen yields fall by more than 300 basis points year to date.

With the market's current appetite for risk, the bonds are poised to continue their outperformance, Marc Chandler, chief market strategist at Bannockburn Global Forex, tells Axios.

  • "Stocks are rallying ... risky assets in general have rallied. As that’s happened Greece has rallied and it has these very favorable characteristics."
  • "A lot of investors have scar tissue around the Greek debt crisis, but there's a new group of investors in the market just looking to chase yield. They're saying, 'Let’s lock it in and not worry about what happened 10 years ago.'"
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