2014 can be characterised as a year of recovery with regards to stability and increased investor appetite for Greek government and corporate bonds. While the implementation of the Memorandum continues, the Greek Government proceeded in April and July with two new bond issues after four years of exclusion from international markets. The successful issues of Greek government bonds with the coupon below the psychological barrier of 5% is a significant development for the Greek economy and the attempt to exit the perennial crisis. In combination with the high bond coverage from foreign institutional investors, this is a crucial step towards restoring the confidence of international markets and Greek economic potential. Based on these developments, which signal the future direction of Greek government bonds and increased investor appetite, Piraeus Bank created the Greek Government Bond Index – following our Piraeus Bank Greek Corporate Bond Index, which reflects the overall changes and returns of Greek government bonds.
The evolution of the index and its comparison with the Bloomberg Eurozone Sovereign Bond Index is indicative of developments in the Greek economy, the intention of international investors to take on Greek risk and the higher returns relative to other countries. The index on September 30th had increased by 43.4% year-to-date compared to 10.3% for the respective Eurozone index. The covariance of the two indicators is remarkable, indicating that despite limited liquidity, the Greek bond market followed European trends. The higher Greek bond returns reflect the rapid decline in yields on Greek bonds, which is a consequence of the reduction of the Greek risk premium.