Commerzbank Weigh In On Notable Outperformance Of Greek Paper Vs. BTPs

In light of the recent yield differential moves between Greek & Italian paper Commerzbank write “we are increasingly being asked "how can this be fair?” True, a rating upgrade by at least one rating agency into IG (for Greece) by year-end seems likely and Moody's was quick stating that the (Greek) election outcome is “credit-positive.” However, Moody's would have to upgrade Greece by three notches to match Italy's rating (or downgrade Italy into junk).”

• “The fact that GGBs trade with such deep give-ups rather underscores what is really important for investors. Top of the list is probably political stability, where an absolute majority of the reform-minded ND now appears very likely in new elections, which could be held as early as 25 June. Second, while the debt ratio is still higher in Greece, the amount of outstanding bonds is significantly smaller. The tradable debt/GDP ratio for instance is only 46% for Greece, compared to 120% for Italy. Finally, the near-term rating dynamics are probably more relevant than the rating levels. Notwithstanding, at current levels, the bulk of the good rating and macro news should be priced in.”