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Greek Fixed Income Monitor – April 2018

The upward trend of Greek government bonds continued in April with Piraeus Bank's Government Bond Index reaching 499 points, i.e. close to the historically high levels recorded at the end of January 2018.

In particular, the Index continued moving upwards in April, recording an increase of 3.06% compared to the end of March, almost a percentage point higher than last month's increase. It is also noteworthy that the 10-year spread has declined significantly by 50 basis points to 330 basis points while the corresponding spread of Portugal remained stable at 111 basis points.

Accordingly, the fundamentals confirm the convergence of borrowing costs with the ones of the rest of the European region, but the downward revision of macroeconomic forecasts combined with the high taxation and debt levels keep the 10-year spread valuation relatively higher (43 basis points) than the current level.

Undoubtedly, in the forefront of developments is the form of the anticipated debt solution with markets searching for a clearer picture extracted from macroeconomic data and the Eurogroup developments on 24th May and 21st June. In addition, a looming agreement between lenders is expected to be confirmed by the credit ratings of international investment houses, with most of the above rating decision expected between mid-July and mid-September.

The Corporate Bond Index recorded a decrease by 0.05% in April falling to 135.6 points while the weighted average yield of the Index stood at 2.52%. The small volatility of the Index since the second quarter of 2016 and thereafter is probably due to the long-term horizon of investors participating in existing and new issues. In a low-yielding environment, the bond market is an important high-interest rate incentive, that conditions only on holding the bond until maturity.

Despite the potential long-term investment horizon, market interest focuses both on short-term expectations in the business sector and on the pace at which capital controls will be lifted. Although developments in this field are expected to continue beyond the end of the economic programme in August, any business-oriented steps on lifting restrictions will give new momentum to the Index.