The Central Bank of Greece is planning to call on the country’s bonds to be eligible for new purchases by the European Central Bank when the massive bond purchase program launched in March in response to the pandemic is expected to end.

Several members of the European Central Bank’s Governing Council expressed that they are willing to find a way to continue buying Greek bonds for the rest of next year at the meeting on Thursday. However, Greek officials worry that legal obstacles may mean that the European Central Bank’s purchases of the country’s debt will still be significantly reduced compared to other countries.

After its 185 million euro Pandemic Emergency Purchase Program (PEPP) expires, officials in Athens are eager to avoid the stigma of being singled out again in the absence of a safety net for the European Central Bank’s bond purchases Stop net purchase In just over three months.

The European Central Bank is generally prohibited from buying bonds issued by Greece because it is the only euro zone country rated below investment grade by major credit rating agencies.

However, when the central bank launched PEPP in March 2020, it made an exception to prohibit the purchase of so-called junk bonds, allowing it to start buying Greek debt again.

In the past two years, the European Central Bank has purchased 35 billion euros of Greek bonds. When it stops making net purchases under PEPP, it is expected that the central bank will continue to purchase bonds under the long-term asset purchase plan. But the plan is forbidden to buy junk bonds.

Since the European Central Bank started buying its bonds, Greece’s borrowing costs have fallen sharply. The country’s 10-year bond yield fell from around 2.4% at the beginning of PEPP to a historical low of just over 0.5% in August. Bond yields fall as prices rise.

The country’s bond yields have risen recently, and investors expect that if the European Central Bank significantly reduces the number of Greek bonds it buys, its spread—that is, the additional interest that Athens must pay relative to Germany when selling new bonds— Will rise further.

Mark Dowding, chief investment officer of BlueBay Asset Management, said that this situation “will definitely be a reason for Greece’s underperformance. You can see the spreads widening further.” However, he said that the hope of Greece’s rating upgrade in the future may limit its bonds. Downside space.

The European Central Bank can still use the proceeds of maturing bonds already purchased under PEPP to buy Greek bonds. The central bank has promised to continue these reinvestments “at least until the end of 2023”, and they may be biased towards Greece.

Frederik Ducrozet, a strategist at Pictet Wealth Management, estimates that the total monthly reinvestment of PEPP is approximately 12.5 billion euros.

Another option is for the European Central Bank to launch a new bond purchase program that has similar flexibility to PEPP, although some board members say this is unlikely. The European Central Bank and the Bank of Greece declined to comment.

Analysts and Greek officials expect that despite the strong economic rebound this year, the country’s bonds will not receive an investment-grade rating until the next national election scheduled for 2023.

Greece Owns the largest national debt in the Eurozone, accounting for more than 200% of GDP. Athens is still under the European Commission’s “enhanced oversight” system, which aims to ensure that it achieves its deficit target by next year.

A Greek official stated that the country hopes to avoid another “Deauville moment”-this refers to the French coastal cities. In 2010, the leaders of Germany and France agreed that any reorganization of the debt of the euro zone countries would be included. Shocked investors. Private sector creditors, Triggering a sell-off of Greek bonds.

Greece is aided by the “troika” of the International Monetary Fund, the European Central Bank and the European Commission, which has imposed strict austerity measures on Athens. Christine Lagarde, President of the European Central Bank, served as French Finance Minister during the Deauville Conference and later became the head of the International Monetary Fund (IMF). Say “The demands on Greece are excessive”-expressing sympathy for the country’s harshly selected ideas.

Officials believe that even if its bond yields rise, Greece’s finances will not be hindered. The country’s Public Debt Authority usually issues bonds in advance, and next year it aims to raise about half of its 10 billion euro debt plan in the first quarter before the PEPP expires.

Greece has also established a cash buffer, currently about 40 billion euros, enough to meet financing needs for at least three years.

Additional report by Tommy Stubbington


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