Major GGB Spreads Little Changed Despite Ratings Affirmation From Fitch

Greek 10s are flat vs Bunds, even after Fitch chose only to reaffirm Greece’s sovereign credit rating at BB+; Outlook Stable after hours on Friday.

• Greek paper has tightened aggressively in recent weeks, ahead of and owing to the firm showing of the business/fiscal-friendly incumbent party in the national elections, with PM Mitsotakis seeking an outright majority in a second round of elections in the coming weeks.
• The 10-Year GGB spread has moved to the tightest levels observed since ’21 as a result of the political dynamics and as hope re: Greece eventually attaining IG status becomes more prominent.
• The 10-Year GGB/Italy spread has moved to fresh all-time tights, underlining the idea that fiscal/rating trajectories often matter more than existing credit rating levels from a market perspective.
• Still, pre-Fitch review, Commerzbank cautioned that “even if Fitch were to upgrade Greece to IG, index inclusion will take some time as the first IG rating is not enough in the main indices. S&P Sovereign bond indices apply the lowest rating from Moody’s/S&P/Fitch, Bloomberg Barclays the middle rating (i.e. “two-out-of-three”) and iBoxx an average rating.”

Fig. 1: 10-Year GGB/Bund & GGB/BTP Spreads (%)