piraeus bank group

Greek Fixed Income Monitor - April 2016

Despite the improved momentum of the government bond market in early March, the increased political uncertainty caused by delays in the initial evaluation of the economic program has created significant pressure. The result of this pressure was a marginal change of the Government Bond Index in April. Specifically, the Government Bond Index in late April closed at 355.9 points, only 0.16% higher than at the end of March. The index fluctuated between 340 and 366 points this month, while in early April it was down 5% in value on a monthly basis. Despite the stabilization of the index in the second half of April, its evolution during May is deemed to be extremely uncertain mainly due to liquidity pressures in the Greek economy.

Since the end of 2015, the Greek government bond market, as reflected by the Piraeus Bank Government Bond Index, has lost on average 1.28% of its value. However, positive developments such as the prospect of debt reprofiling and the anticipated access to the ECB quantitative easing policy, are expected to follow in the event of a successful outcome of the first evaluation. Important dates which are expected to affect market expectations are the Eurogroup Meetings on 9 and 24 May, as well as the July 20 bond repayment to the ECB.

A marginal increase of 0.58% was recorded by the Corporate Bond Index in late April, with gains for the majority of bond issues. However, macroeconomic conditions in the Greek economy have kept the index at lower levels than at the beginning of the year. Specifically, the index remained close to the range of 109-110 units, a decrease of 2.6% from the beginning of the year.

A significant increase was recorded in April for the bond issued by Frigoglass with a price increase equal to 15% compared to the end of March. This development reflects the market’s positive assessment of the company’s support under the loan agreement of €30 million by Truad Verwaltungs AG. However, a drop of 3.27% was recorded for the PPC bond with maturity date on May 1, 2017 as the confirmation of the long-term company rating to CCC- with a negative outlook from Standard & Poor's in April increased concerns about the company’s sources of funding and liquidity.

In April, the Economic Sentiment Indicator (ESI) remained at similar levels to those of the previous month, rising by just 0.2 points to 90.3. Similarly, the 5-year CDS did not display any significant changes, remaining in the range of 1111 to 1253 basis points. The political developments in recent months have brought back to the fore increased uncertainty both in the real economy and in the market’s valuation levels for Greek corporate and government bonds. As a result, political risk remains the driving factor of economic developments and the markets will continue their waiting stance until the outlook of the Greek economy becomes less uncertain.