Citi: Stay Long GGB’s Into Moody’s Review

Citi write “following a rating upgrade from DBRS to IG last week, GGBs will hope for another rating boost when Moody’s reviews Greece this Friday.”

• “Indeed, Moody’s recent constructive assessment of Greece from two weeks ago even opens up the potential for multiple upgrades ahead, especially as Moody’s still rates Greece two notches below S&P and Fitch.”
• “Further, with S&P and Fitch due to review Greece in Q4, this raises the possibility that Greece attains an IG rating from at least two out of these three potentially by year-end, making GGBs eligible for IG indices around the turn of the year.”
• “This could mean €75bn of GGBs get included in the Bloomberg Barclays Euro Treasury index, equivalent to 1% of the rebalanced index, at month-end following the second upgrade to IG.”
• “Overall, this improves risk-reward of long GGBs into Friday’s rating review, in our view, especially after yesterday’s 5bp underperformance vs. Bunds. We stick with our 10yr GGB/PGB tighteners.”