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Greek Fixed Income Monitor - February 2016

Amid the negative climate created by the cancellation of the Frigoglass agreement and continued high uncertainty in Government bonds, Coca-Cola HBC announced a bond issue with annual coupon 1.875% and maturity on 11 November 2024. The settlement date of the bond issuance worth € 600 mn was 10 March 2016.

The Government bond market moved downwards for the second consecutive month since the beginning of 2016, with the Government Bond Index losing almost 10% of its value on a Year to Date (YtD) basis. The deterioration of the situation in the Government bond market is a direct result of the adverse economic climate and expectations of high uncertainty due to the delay in the completion of the programme evaluation, the difficulties in implementing structural reforms and the increasing difficulties in reaching a solution concerning the refugee issue.

In February, the Government Bond Index recorded a drop of around 1.38% compared to the end of January with the most pronounced negative moves observed in the second half of the month. Specifically, the index moved below the 300 units level (295.68 on 11 February). However, the Government bond market showed some signs of stabilization at the end of the month, reaching 325.5 units.

In contrast, the European government bond market displayed considerable gains relative to the beginning of the year, as evidence of a further slowdown in inflation in the Eurozone had reinforced expectations for significant loosening in monetary policy on Thursday March 10. Bloomberg's index for government bonds in the Eurozone rose in February by 2.7% relative to the beginning of the year.

An important development in the corporate bond market is the filing for the amendment for the elimination of the contractual ceiling rate of 5.3% for debentures so as to improve the pricing on certain corporate issues.

This arrangement is expected to enable small and medium-sized enterprises to seek alternative sources of funding and also to strengthen demand in the corporate bond market. Although this initiative could serve as a liquidity injection to Greek businesses, borrowing costs would rise significantly because of the economic environment in the country. Specifically, in accordance with the interest rate curve for Government issues with 5-Year maturity the rate is close to 11%. Therefore, under the current economic conditions, for corporate issues with similar characteristics the market is expected to ask higher interest rates which may burden Greek company balance sheets.