JP Morgan has urged investors to open long positions in Greek bonds following their underperformance last week relative to Italian bonds.
According to JP Morgan, there is generally a positive medium-term outlook for Greek bonds, with the expectation they will consistently trade at spreads against Italian bonds (25-60 bps), attributed to robust macroeconomic/fiscal fundamentals, a stable political landscape, and ongoing rating upgrades.
In terms of credit assessment, DBRS – the world’s fourth largest credit ratings- and S&P have already upgraded Greece to investment-grade (IG) status, while Fitch is expected to follow suit during its assessment on December 1.
JP Morgan points out that according to the inclusion rules for the European Government Bond (EGB) indexes, an IG rating from at least two of the three rating agencies (S&P, Moody’s, and Fitch) is required for Greek bonds to be included. Therefore, the Fitch rating assessment for Greece on December 1 will be crucial.
JP Morgan concludes that the recent lag in Greek bonds has created appealing long entry points, with yields widening after Fitch’s upgrade of Greece and potential flows expected from the inclusion of Greek securities in the European bond indexes.
It is noteworthy that JP Morgan estimates Greece’s GDP will increase by 2.4% in 2023, with inflation at 4.2%. Additionally, it foresees a primary surplus of 1.9% and a fiscal deficit of 1.3%.