Greek debt rallies sharply with country headed for snap elections

Benchmark bond yield tumbles to historic low on hope of more market-friendly government

Greece’s government bond prices roared higher after prime minister Alexis Tsipras said he would call a general election following his Syriza party’s poor showing in European elections.

The general election will probably take place either in June or July, said Andrew Kenningham, chief Europe economist at Capital Economics.

“Opinion polls suggest that New Democracy, which is more business-friendly and pro-european than Syriza, will win,” he said.

The benchmark 10-year bond yield dropped 32.6 basis points (0.326 percentage points) to 3.036 per cent, the lowest level on records stretching back to 2000, according to Bloomberg data. It

marked the biggest fall in yield since December 2017.

Greek stocks also rallied, with the FTSE index of the country’s biggest companies up 4.7 per cent in morning trade.

The current state of play stands in sharp contrast to eight years ago when yields climbed above 40 per cent as the country looked to be edging towards a default and it became the focal point of the eurozone debt crisis.

Greece subsequently went through a deep recession and a trio of International Monetary Fund bailouts, the last of which it exited last summer. It has now emerged from the worst of its troubles, however, triggering a rally in bond prices and sending yields persistently lower.

Only a small share of Greek government debt is traded regularly on public markets, something that can make daily swings particularly abrupt.

In March, it successfully tapped the international fixed income market, selling its first 10-year bond in nine years. It raised €2.5bn of paper priced at a yield of 3.9 per cent. Order books topped €11.8bn.

Investors have also been encouraged by the country’s fiscal reforms. Between 2009 and 2017, the primary fiscal balance improved by more than 14 per cent of GDP, despite the recession, as the country underwent a gruelling austerity programme.

The IMF said in March this year that Greece had “entered a period of economic growth that puts it among the top performers in the eurozone”. The fund expects the Greek economy to expand by around 2.5 per cent this year, up from 2 per cent last year, having returned to growth in 2017.