Greece’s five-year bond yield fell below zero for the first time on Monday after the European Central Bank’s decision to maintain the pace of its asset purchase programme spurred a rally in riskier eurozone debt.
The move means that investors are in effect prepared to pay Athens to borrow for up to half a decade, despite debt levels that have soared to more than 200 per cent of GDP during the pandemic.
A positive climate prevailed in the domestic electronic secondary bond market on Monday, pushing the Greek bond yield slightly below 1.0%.
A similar climate prevailed in other Eurozone debt markets.
The 10-year bond yield was 0.74%-0.73%, the five-year bond yield was -0.08% and the 15-year bond yield was 0.88%.
The yield spread between the 10-year Greek and German benchmark bonds fell below 1.0% to 0.99% from 1.03% on Friday.
Turnover was a thin 29 million euros, of which 8.0 million were buy orders.
These results came about because of the European Central Bank’s decision to maintain the pace of its asset purchase programme spurred a rally in riskier eurozone debt.
“We’re seeing this rally because the ECB has reassured the market it won’t imminently remove the punchbowl,” said Richard McGuire, a rates strategist at Rabobank, to Financial Times.
The ECB’s pushback against tapering speculation came at a time when so-called spreads between Germany’s borrowing costs and those of more indebted eurozone members were widening.
“In the near term the ECB is very, very clear,” said Nic Hoogewijs, a portfolio manager at Lombard Odier Investment Managers. “They do not want to see a tightening of financial conditions, and funding costs for sovereigns really is key.”
Hoogewijs said the firm owns higher-yielding sovereign bonds across the euro area despite the explosion in debt levels brought about by the pandemic. “
You can’t really position on sovereign spreads based on economic fundamentals. That’s not what drives pricing,” he said.
Investors are unlikely to bet against Greek or Italian debt as markets head into a potential summer lull, according McGuire.
However, as the economic recovery gathers momentum, talk of tapering is likely to return.
“The ECB has bought time,” he said. “But as we edge towards September there’s a likelihood we refocus attention on the winding down of stimulus.”