RBS, Credit Suisse recommend buying Greek debt


A logo of the Royal Bank of Scotland (RBS) is reflected in the window of a branch office in London November 1, 2013. [Reuters]

It is barely two weeks since Greece was on the brink of crashing out of the euro, yet some investment banks are now encouraging investors to return to its bond market.

A last gasp deal on 13 July saw Athens accept a new round of austerity measures in return for talks on a third international bailout deal, which are about to get under way.

Although questions remain over whether Greece will be able to stick to the terms of a new deal or will be back at the ballot box within the year, markets have breathed a collective sigh of relief.

Greece’s two year borrowing costs have more than halved from peaks of over 58% hit this month even though they still yield more than longer equivalents – a signal that investors fear a default could be on the cards.

Some banks now see an opportunity for their clients.

RBS recommends buying five-year Greek bonds in the expectation that the European Central Bank will buy up Greek bonds under its quantitative easing (QE) programme, which is conditional on Athens signing up to a new bailout deal.

“Greek sovereign debt inclusion in QE would be a major boost for the market and likely lead to aggressive tightening, at least in the short term,” said RBS strategist Michael Michaelides.

While the bank acknowledges ECB purchases of Greek debt may only last for two months because of its own limits, it said the price could rally to 80 cents from 68 cents due to the impact of ECB purchases in a market that has seen hardly any trading of late.

RBS calculates that ECB purchases of €1.2 billion a month would markedly trump average monthly trading volumes of €800 million seen last year.

Pointing to policymakers’ resolve to hold the eurozone together, Credit Suisse also said investors should consider buying Greek bonds if prices fall again.

“If the price falls significantly, then we would buy Greek bonds because ultimately when the stress is really high every player is then incentivised again to produce a solution that prevents the worst possible outcome,” Credit Suisse strategist Christian Schwarz said.

But for many others, fear that another chapter in the Greek crisis may be just around the corner is reason enough to steer clear.

“Regardless of what happens with QE, it’s still going to be extremely political, so we are staying away from giving any explicit trade recommendations on Greece,” said Abhishek Singhania, European interest rate strategist at Deutsche Bank.

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