Greek 10-year government bond yields fell to record lows on Thursday as a sharp rally spurred on by the fast-paced purchase of the country’s debt by the European Central Bank kept pace with investors continuing to snap up higher-yielding assets in summer trading.
The European Central Bank has bought 13.5% of Greece‘s tiny bond debt pile of about 73 billion euros in just four months, data showed earlier this week.
It started purchasing Greek debt for the first time in late March, making an exception to include the junk-rated debt in its pandemic bond-buying programme, helping the country outperform its peers since.
Ten-year yields fell to a record low at 0.91% on Thursday, according to Tradeweb – a fraction of a peak at over 4% they spiked to in March at the height of the coronavirus sell-off.
“It’s like putting a put in the system and essentially yield control at the higher level, which then encourages people to take risks,” Nordea Asset Management strategist Sebastien Galy said of the ECB’s purchases.
“They’ve crushed yields and people are running carry trade on the back of that,” he said referring to a trade where investors use cheap funds to buy higher-yielding assets.
Investors say Greek debt has also benefited from the lifting of a restriction after five years in May on the amount of sovereign bonds Greek banks can hold. That change has helped bring short-dated borrowing costs back into negative territory, Nordea’s Galy said.
Greece sold three-month bills with a negative yield on Wednesday.
And it is also expected to be the biggest beneficiary of the 750 billion euro recovery fund the European Union agreed last month, set to receive nearly 17% of its GDP across grants and loans, according to J.P. Morgan.
The fund has boosted demand for peripheral bonds more broadly, tightening the yield premium they pay on top of Germany, strengthening investor confidence in the future of the euro area.
Government bond yields across the euro area also fell on Thursday after markets digested new bond sales from France and Spain, which sold roughly 14 billion euros of bonds between them.
Reuters quotes showed Italy’s 10-year bond yield falling below the psychologically important 1% level for the first time since early March. Other platforms showed it breached that level two weeks earlier.
“It feels to me as if there is some relief after the end of this week’s heavy supply slate for EGBs (European government bonds),” said Antoine Bouvet, senior rates strategist at ING.
Safe-haven German bonds yields also fell. The 10-year yield was last down 3 basis points to -0.54%.