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Financial Times: Yield-seeking investors overcome fears to hurry back to Greece

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Financial Times: Yield-seeking investors overcome fears to hurry back to Greece

In a world of ultra-low interest rates, Athens’ relatively high yields are appealing


Investors are flocking to Greece as the former financial-market pariah emerges from a decade of economic crises, sending stock prices soaring and borrowing costs tumbling.

The finance ministry this week announced that capital controls imposed following a 2015 bank run would be fully lifted on September 1, meaning Greek households and companies will no longer face restrictions on transferring money abroad.

The development marks a milestone in the country’s rehabilitation in the eyes of investors, many of whom have overcome still-fresh memories of turmoil to plough back in to Greek assets. Ten-year government bond yields dropped as much as 14 basis points on Tuesday to 1.826 per cent, their lowest level on record, bringing total falls for the year to 250 basis points.

The plunging cost of borrowing reflects a stark turnround from the darkest days of the eurozone sovereign debt crisis, when Athens was frozen out of international capital markets.

“It’s a reflection of how far Greece has come,” said Nick Wall, a portfolio manager at Merian Global Investors who holds Greek government bonds. “Yields do seem extraordinarily low. But everything else is extraordinarily low. People will keep buying it for the positive yield it brings.”

The sharp moves are part of a broader rally in eurozone debt which has pushed yields on a large part of the eurozone’s sovereign debt market below zero. But Greece has been a particular beneficiary. The spread between Greek 10-year bond yields and their German equivalent, a proxy for investors’ concerns over Athens’ economic outlook, is now down to 2.5 percentage points, from a high of almost 40 points during the most intense phase of the crisis in 2012.

Mr Wall said the growing confidence among investors reflected Greece’s healthy budget surplus and the co-operative attitude towards EU institutions of the new centre-right government led by Kyriakos Mitsotakis. He said: “What markets didn’t want to see was the new government going against the wishes of European partners. The capital controls move was expected, but the fact that it was done [while] making sure that the EU authorities were consulted, was a good sign.”

Greek stocks are also on a tear. The Athex composite index has risen 35 per cent this year, leaving it on track for its best year since 1999 and easily outgunning the 10 per cent gain of the Stoxx Europe 600, the continental benchmark.

Ricardo Garcia, chief eurozone economist at UBS Global Wealth Management, which oversees $2.5tn in assets, said the market had been “giving some advance credit” to the new government’s economic reform programme. He expected the country’s debt burden to continue to shrink unless there was a severe global recession.

Still, he noted that some investors remained sceptical of both the country’s significant debt burden, and of its recent history. “The worst is over but there is still a stigma; we see it with our clients,” said Mr Garcia. “There is still this image of Greece being a speculative investment.”

Source: https://www.ft.com/content/0b206050-c8ca-11e9-a1f4-3669401ba76f

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