Greece is planning to launch its first syndication since incumbent prime minister Kyriakos Mitsotakis won last month's election and made a pledge to repay bailout loans owed to eurozone countries ahead of schedule and return the country to investment-grade ratings later this year.
The sovereign has mandated BNP Paribas, Bank of America, Deutsche Bank, Goldman Sachs, JP Morgan and National Bank of Greece for a 15-year euro benchmark, its longest syndicated tenor since September 2021.
The spread between Germany and Greece's 10-year yields snapped tighter following the New Democracy party's victory last month. It was quoted at 106.5bp on June 26 versus 108.3bp the previous Friday, at the time its tightest level since mid-October 2021. It has been moving wider since, however, and was quoted at 142.8bp on Monday, according to Tradeweb.
"It's natural to see a bit of a pop on the back of the announcement, that's pretty natural, but the rest of it is down to softer markets over the last week and a half, and we've seen that across sectors," a banker familiar with the trade said.
Still, that spread could snap tighter should the country's Ba3 (positive)/BB+ (positive)/BB+ (stable)/BBH (stable) ratings be upgraded. It has spent over 12 years in junk territory.
“Greece is an exceptional economic story,” Filippo Taddei, senior economist for Southern Europe at Goldman Sachs, wrote in a note in May, adding that a return to investment-grade would mark a sharp reversal for an economy that was roiled during the euro area’s sovereign debt crisis.
"We’re looking right now at an economy that is growing almost 3% above what we expect the pace of growth to be in the euro area. Looking ahead to 2024, we see that gap receding to something just below 2%, but that’s still an economy growing much faster than its peers. On top of that, Greece is looking at inflation coming down more quickly than its peers."
He added that should Greece be upgraded, big pension funds and insurers, among other investors, could step in and start investing in Greek securities for the first time in a very long time. "This change would contribute to providing cheaper and stable funding for the country’s future investment needs," he wrote.
The banker said investors anticipating Greece's return to investment-grade has been one of the reasons why the sovereign has been such a strong performer this year.
"While we can't answer when it's going to happen, a lot of people have been positioning for that," he said.
The new trade will come alongside a concurrent switch and tender offer on the sovereign's 3.450% euro note due 2024 and its 3.375% euro bonds due 2025. It will allow the country to maintain the length of the average maturity of its debt, which stands at around 20 years, versus an average of eight years for Spain, Cyprus, Ireland, Portugal and Italy.
One of the country's banks has already taken advantage of the positive tailwind. Piraeus printed a €500m five-year non-call four senior preferred last week at a 7.25% yield.
The transaction will emerge alongside the European Union, which mandated Barclays, BNP Paribas, Citigroup, LBBW and NatWest Markets for a tap of its 2.5% October 2052 line.
"The long end of the curve is pretty well bid right now," the banker said. "The higher rate environment is helping demand for long-end paper. We saw that with the EU dual-tranche, and while there will be different views because of the dislocations you get as a result of an inverted yield curve, a lot of investors like it."
At the other end of the curve, the State of Baden-Wuerttemberg is planning to bring a €500m six-year FRN via DekaBank, DZ Bank, Helaba, LBBW and NordLB.