Media coverage of the long Greek summer was somewhat overshadowed by fears about a slowdown in the Chinese economy, which has wreaked havoc on the markets. Those first days of August when Greece and international creditors were trying to agree on the third 86 billion euro bailout for Athens seem long gone.
After reaching an agreement and drawing up a memorandum of the next Greek steps three years from now, Greek Prime Minister Alexis Tsipras has decided to resign and let the Greek people decide again. Appointment then at the polls on Sunday 20 September.
The latest polls give the outgoing prime minister the favourite, even if only slightly compared to the conservatives of New Democracy. The various exit poll suggest that the chance of winning a large majority is remote. So attention returns to Greece and it is useful to see how the markets are reacting.
MY BAG
Since the beginning of the year, the Athens Stock Exchange index is still in heavy losses and marks -19,11%. Naturally, it was affected not only by the sharp decline due to Greek worries, but also by the collapse of world stock markets due to fears about China, to the extent that the low point was reached on 24 August. Since that Monday, the Greek stock market has risen by 17,60%, surpassing the lows of the first few days of August.
CDS
As regards the value of 5-year CDS, and therefore implicitly the country's probability of default, the values of the hot summer (8.532 points) are now distant; we have witnessed a gradual reduction in CDS quotations, until they almost stabilized in the last two weeks between 1.450 and 1.500 points.
Bond yields
The Greek government bond yield curve is constantly inverted, with the 2-year yield higher than the 10-year yield – an indication that the turmoil is still ongoing. However, the yield differential has narrowed significantly compared to a few months ago.
The yield on 2-year government bonds is currently 10,72%, a substantially stable figure in this last period, after a drop of 1.900 basis points from the highs of mid-June (29,10%). The 10-year bond, on the other hand, has been less volatile than the short-term bond and currently trades at just over 8%.
Overall, on the eve of the elections, the financial markets do not seem to be particularly worried. We will have to wait for the results of 20 September 2015. And, above all, it will be necessary to understand whether the new government will be able to form a strong majority, to see the real reaction of the markets.
