Jun 12, 2019

Greece's epic 2019

Illustration: Sarah Grillo/Axios

Greek assets have been on fire this year, and more particularly in the past two weeks as investors position for a more business-friendly government to take the reins from Prime Minister Alexis Tsipras.

Why it matters: After years of being viewed as a market pariah — thrice bailed out by its eurozone creditors, limping from one austerity budget to the next — Greece last year began its road to economic recovery, with "positive developments" noted by an IMF monitor. (Though it is still the fund's 3rd largest borrower after Argentina and Ukraine.)

Driving the news: Tsipras' far-left Syriza party suffered massive defeats in European Parliament elections on May 26, and the government called for snap elections by June 30.

  • Greece's benchmark stock exchange has surged 38% year-to-date and an MSCI collection of its largest companies has gained 28%, outpacing every major stock index in the world, data from FactSet shows.
  • Much of that has come in the weeks since the May 26 ballot.

The big picture: Bonds globally have performed well, but Greece has seen particularly rousing returns. Yields on 10-year notes fell to record lows after the election results and have continued to drop. (Yields fall as prices rise.)

  • The yield spread between 10-year Greek government debt and its German equivalent has fallen to just 300 basis points, even with German yields at all-time lows well below 0%.
  • Greece's 5-year government bond yields earlier this month were lower than comparable Italian bonds for the first time since 2008.

"The decline since the start of the year is remarkable, with Datastream data showing that the yield dipped below 2% for the first time since the series started in 1997," analysts at Fathom Consulting note.

  • It's all the more impressive given that Greece issued a 10-year bond with a yield of around 3.9% in March.
  • GDP has returned to growth, rising an estimated 2.1% in 2018 with an IMF forecast of 2.4% in 2019 after years of declines.

Yes, but: Greece's economic numbers have not been spectacular all around. Its current account deficit rose significantly in March and its unemployment rate remains an elevated 18% — well below the 28.4% record high reported in February 2014, but still almost double 2009 levels of 9.7%.

Go deeper: Europe moves on from financial crisis, but Greece is still recovering

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Illustration: Sarah Grillo/Axios

The Fed's massive injections of liquidity have reopened much of the bond market, and after back-to-back weeks in which more than $100 billion flowed out of bond funds, investors have regained their bearings and now see opportunity.

What's happening: But after the hemorrhaging outflows relented last week, bulls may now be sticking their heads out a bit too far. Junk bond funds took in more than $7 billion for the week ended April 1, according to Refinitiv Lipper, setting a new weekly record.