24/7 Wall St.

It seems hard to imagine much good news coming out of Greece concerning its economy. After all, it has what feels like a decade-long negative track record, and it is one of the so-called PIIGS. Maybe it’s true that not even bad news lasts forever. On Friday, a rare two-notch credit ratings upgrade was made. Moody’s Investors Service raised the government of Greece’s local and foreign currency issuer ratings to B1 from a B3 rating, and the same upgrade was issued for Greece’s local currency senior unsecured debt rating and on the foreign currency senior unsecured MTN program and senior unsecured shelf ratings. Greece’s credit outlook was changed to stable from a prior positive outlook.

Greece remains well under investment grade, but its 10-year spread on the Greece-Germany level reportedly has tightened to around 350 basis points. That is about 70 basis points narrower than at the start of 2019, and it now has a yield of approximately 3.65% ahead of a new major bond sale this week. Its long-term yields are also at the lowest levels since the beginning of 2006.

The news of the Moody’s upgrades have yet to make any substantial gap-ups for Greek shares as measured by the Global X MSCI Greece ETF (NYSEARCA: GREK). Its shares did trade higher on Thursday and Friday, but the Greek equity ETF was last seen back down 1.8% at $7.86 on Monday. Its 52-week trading range is $6.77 to $10.81, and the ETF’s own website from Global X showed its last assets as being just $277 million. According to the Financial Times, the Athens General (index) was up as much as 1.5% in early local trading and the local bank stocks were the top gainers.

There were three key drivers for the Moody’s credit rating upgrade on Friday afternoon after the U.S. markets had closed.

The first mention was that Greece’s reform program appears to be firmly entrenched while the reforms implemented are showing positive signs. Moody’s even noted that a strengthening economy along with creditor surveillance should further reduce Greece’s risk of reform reversal.

Greece’s track record of strong fiscal performance also is now shown to be firmly established and should be sustained. Moody’s noted that most of Greece’s fiscal improvement is due to structural measures.

Another positive is that Greece’s public debt sustainability has been materially enhanced over the medium term by a debt relief package from June of 2018. Greece also is able to get market-based funding (i.e., bond issuances) and is supported by a very large cash cushion and strong creditor support.

Moody’s further said of Greece’s improvements:

Greece’s economy has become significantly more open in recent years, with exports now accounting for 37% of nominal GDP as of Q3 2018 compared to 22% back in 2010. Competitiveness has markedly improved, due to a significant reduction in labor costs, and exports of both goods and services have accelerated strongly during 2018.

It was just in January that Greek banks were having trouble again.

What matters here ahead of a Greek bond issuance this week, after Greece has hired bankers to underwrite a deal, is that Greece’s long-term yields now appear to be at 13-year lows. The size of the bond issuance may change, but Dow Jones News had reported that it was expected to be around €2 billion.