Greece Is Lightening

Greece announced a bond sale

Image source: CalypsoArt, Zerbor, Gilmanshin - Shutterstock

What's going on?

Greece has well and truly emerged from its bailout: on Monday, the country announced plans to sell 10-year bonds for the first time in almost a decade.

What does this mean?

After revealing an enormous budget deficit in 2010, Greece was blocked from issuing new bonds to borrow money. Over the next eight years, the floundering economy received emergency loans totaling $330 billion from the European Union and the International Monetary Fund (a sort of bank for countries) to keep it afloat. In August 2018, Greece was finally deemed strong enough to come off financial life support.

On Friday, credit rating agency Moody’s raised its assessment of the country’s existing bonds – meaning it thinks Greece is now better able to repay its debt. And the country immediately capitalized on the fuzzy feelings, saying that it would shortly issue new 10-year bonds. Although Greece has previously sold less risky shorter-term debt (investors lapped up its last five-year bond sale in January), the 10-year bonds will be an important test of lenders’ faith.

Why should I care?

For markets: Greece is hot property.

Investors ploughed into existing Greek bonds on Monday. This increase in demand pushed their price up – and their yields down (as yield is a bond’s interest payment as a percentage of its price). Yields on old 10-year bonds dropped to their lowest levels since 2006 – so the new bonds’ yields will likely be similarly low. Meanwhile, shares of Greek banks rose: they hold a lot of newly safer government debt, making the banks safer investments themselves.

The bigger picture: The eurozone’s walking a tightrope.

Later this week, the European Central Bank (ECB) will issue an update on its plans to raise interest rates. Despite weak data on Friday, there are some reasons to be glass-half-full: European consumers are feeling more positive and unemployment is its lowest in a decade. But the ECB has to balance all this against low inflation and economic growth when deciding whether to pump more financial support into the region.

Originally posted as part of the Finimize daily email.

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