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Greek bonds are safer and will only get safer


Centeno said that an agreement to soften future debt repayments, reached two weeks ago, has reduced investors’ concerns over the embattled European nation. Under the deal, creditors have pushed back any interest and loan repayments for 10 years. There is a commitment to give Greece any profits made by central banks in the euro zone on their respective holdings of Greek bonds; as well as a promise from Europe to reassess the sustainability of the debt in 2032.

When asked if these measures had made the benchmark 10-year Greek government bond less risky, Centeno said: “I am sure it is and it will be even more so after August 20.”

Greece is scheduled to end nearly a decade of external help this August, after implementing more than 400 policy measures demanded by creditors. The yield on the 10-year government bond has fallen about 30 basis points in the wake of the recent debt deal. It moved from standing at about 4.2 percent to 3.9 percent. In contrast, Italy’s 10-year yield currently stands at 2.668 percent and the U.S.’ at 2.85 percent.

“But this is, I won’t call it a slow process, but again looking at past experiences you see countries exiting a program gradually gaining confidence,” Centeno said, hinting that Athens still has a lot to do to keep the economy going.

It’s not just about attracting investment but also delivering on financial commitments. Greece’s creditors have demanded a 3.5 percent primary surplus for the next four years and 2.2 percent in the 37 years after that.

Despite the economic unpredictability related to such a long time period, Centeno told CNBC in Strasbourg, France, that he is confident Athens will deliver.

“I just want to remember that Greece has got two years in a row more than 4 percent (for a) primary surplus, which means that we are converging to a lower level of primary budget surplus. If you ask me, if it is demanding, yes it will be, if it is challenging, certainly, so this resilience across the economic and political cycles is crucial to define the success of the program,” he said.

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April 8, 2019

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