BoG report: Greek economy’s upgrade brought investments in bonds and shares worth 5 bln euros
The Greek economy saw an influx of 5 billion euros for Greek state shares and bonds as a result of the credit rating upgrade of the Greek economy, a report in the Bank of Greece (BoG) Economic Bulletin said on Wednesday.
In “The investment grade and funds’ portfolio allocation in Greek assets” (Issue 59, July 2024), authors Haris Giannakidis, Louis Karathanos, Athanasios Kontinopoulos, Athanasios Lampousis and Petros Migiakis said their analysis found that between Q4 2022 to Q3 in 2023, the rise in bond and share placements is assessed at 5 billion euros, of which 2.9 billion euros relate to placements in shares and 2.1 billion euros to placements in bonds.
The authors explained that the analysis found that in the aftermath of the change in Greece’s sovereign credit rating outlook to positive by the rating agency Standard and Poor’s (S&P), investment funds increased their holdings of Greek sovereign bonds in relation to other comparable euro area sovereign bonds. Their analysis also found that this increase in investment funds’ positions in Greek government bonds (GGBs) explains about 80% of the reduction in Greek sovereign bond spreads.
These results highlight the strong association between investment funds’ portfolio allocation and the underlying assets’ credit ratings, and provide incentives for continuing reforms that may lead to rating upgrades, as a means of increasing demand for Greek sovereign bonds and controlling the cost of debt, the report said. This is especially important when the monetary policy environment becomes tighter and interest rates, as well as the cost of funding, increase, the report noted.