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Greek Fixed Income Monitor – Μarch 2016

Significant gains were observed in the government bond market in March, put a halt to the downward trend of the past two months. The Government Bond Index increased by 9.85% from the level of 325.51 units at the end of February. Nevertheless, since mid-March a weakening in momentum has been recorded, causing the index to remain within the range of 354-358 units. One interpretation of the index stabilizing at these levels is that it is a reflection of the markets’ waiting stance on the outcome of the economic programme evaluation.

Despite the considerable investor interest that led to the significant increase in the government bond market, the Government Bond Index is 0.8% lower than its value at the beginning of the year. Although this reduction is marginal compared to the losses observed in the previous two months, the possibility of a further decline in the index cannot be dismissed due to potential complications on the way to an agreement between the creditors and the Greek government.

Gains were also recorded for the majority of the bonds in the Corporate Bonds Index with the exception of that of Frigoglass which recorded a decrease of -5.54% compared to February. This development curbed the Corporate Bond Index momentum which increased in March by only a marginal 0.27% on a monthly basis. As a result, in sharp contrast to the European corporate bond market, the index is still 2.5% lower than at the beginning of the year.

In general the Greek corporate bonds market exhibited upward momentum in March with OTE bonds (maturing in 2020) and the PPC bond (maturing in 2017) recording increases of 8.79% and 10.57% respectively. In contrast, record losses equal to €62 mn for Frigoglass in 2015 created strong volatility for the company's bond, reinforced by the cancellation of the agreement with GZI Mauritius. However, one positive is the fact that support amounting to €30 million in the form of a loan agreement for one year is to be granted to the company with the help of its major shareholder Truad Verwaltungs AG. The approval of the loan agreement will be decided at the General Meeting on April 22.

There was short-term relief in European bond markets, after the ECB decided to reduce the policy rate by 5 basis points on March 10 and extend quantitative easing by incorporating corporate bonds in the asset purchase programme. Monetary policy in the Euro area has yielded significant gains in European corporate and government bond markets. More specifically, the Bloomberg index for the Eurozone government bond market rose by 0.6% in March on a monthly basis. Moreover, when compared with the beginning of 2016, the index was 3.32% higher. Nevertheless, the significant downside risks of a slowdown in the global economy generates high uncertainty as to whether the bond markets can continue their rally in the medium term.