Fitch upgrades Greece as political risk eases

Fitch Ratings upgraded Greece’s long-term foreign-currency issuer default ratings to B- from CCC, citing reduced political risk and sustained GDP growth. Fitch said on Friday it expected the general government debt to steadily improve, cushioned by benefits from the European Stability Mechanism (ESM) program. Eurozone governments in June threw Greece another 11th-hour credit lifeline and sketched new detail on possible debt relief. The Fitch upgrade comes after Moody’s upgraded Greece’s long-term issuer rating to Caa2 in June saying that it expected to see growth in the Greek economy. Fitch noted that its confidence in the Greek banking sector remained fragile, although it was improving. “A key challenge for the banking sector is tackling nonperforming exposures (NPEs), which remain stubbornly high at 45 percent of gross loans,” Fitch said on Friday. Fitch maintained its positive outlook on the European country and said the risk of any future government reversing policy measures adopted under the European Stability Mechanism program is limited. year bond stands at 4.65 percent, compared to the original yield of 4.47 percent on July 26, when the bond started trading. Although fund managers had expected a decline in government borrowing rates, due to Greece’s return to the markets for the first time since March 2014, markets are re-evaluating the prospects of the Greek economy and borrowing costs are back at the levels they were on June 15, when the Eurogroup met and approved the country’s second bailout review and the disbursement of a bailout tranche of 8.2 million euros. The latest developments are a headache for the government, which would have liked the country’s borrowing costs – at least at the 10-year level – to fall below 5 percent. But that is not the case. The yield on the 10-year bond has climbed to 5.57 percent from 5.25 percent in July 26. Moreover, the yield on 2-year paper has also risen to 3.15 percent compared to 3.10 percent on July 26. The disappointing picture as regards the country’s borrowing costs is also reflected in the increase of spreads. Fund managers will today be assessing the credit rating report for Greece by Fitch, which was released on Friday. The government is aiming for a reduction in the country’s borrowing costs over the next few months in order to attempt a second Greek bond issue in late October and early November, when the third bailout review will begin.