What does a Greek bond yield below 3% tell us?

Sometimes it is good to look at things from another direction so let me start by looking at the current situation through the prism of financial markets rather than the real economy. From @tracyalloway.

Greek government bond yields below 3%

I will return to the why and therefore of this in a moment but let me first move onto the stock market. Here is an article from Forbes from Saturday.

Greece’s stock market rose sharply this week, following a big defeat of the ruling leftist coalition in Regional and Euroelections last Sunday.

The Global Shares X FTSE shares (GREK) have gained 9.10%, as most financial markets around the world lost ground. Banks were particularly strong, leading the rally.

As you can see that was different to many other equity markets and continues stronger performance this year. If we move to the ASE General Index it at 828 is just under its high for the year and is up nearly 9% this year and around 35% on a year ago.

Some Perspective

If we return to the bond market then there are two clear perspectives. The first is that we have yet another day of singing along with the Black-Eyed Peas.

Boom boom boom
That boom boom boom
That boom boom boom
Boom boom boom

We have seen yet another all-time high for the benchmark German bond or bund as the ten-year yield has fallen to -0.21%. That has something of an ominous portent for the world economy if traders are correct. As we note that this time around Greece has joined the party there are nuances.

EFSF financial assistance, part of the second programme, ran from March 2012 through June 2015. In this programme, the EFSF disbursed a total of €141.8 billion, of which €130.9 is outstanding………….Together, the EFSF and ESM disbursed €204 billion to Greece, and now hold more than half of its public debt. ( European Stability Mechanism)

So as you can see there are a lot fewer Greek bonds in circulation than there were, as they have been subsumed into EFSF/ESM system. This has had a consequence for volumes in the market as @Birdyworld points out.

When people are talking about Greek government bond yields it’s worth remembering that it’s basically not a market any more. The average month from 2001-2010 saw 42bn euros in secondary market transactions. The ENTIRE transaction volume 2011-2019 is 29bn euros.

This is a point I remember making back in the early days of the crisis when the ECB was buying Greek bonds to support the market that volumes went off the edge of a cliff. So the bond market does not tell us what it used to.

Also the stock market has improved but when we note it was previously above 5000 we can see that some context is required there too.


We can continue with something of a positive gloss as we note this from earlier this morning.

The Greek manufacturing sector strengthened further in
May. Production and new order growth remained sharp,
with employment continuing to rise. Domestic and foreign
demand were still resilient as new export orders rose strongly………… Currently, IHS Markit forecasts a 3%
increase in industrial production in 2019, with the rate of
unemployment set to fall to 18.3% by the end of the year.

That was from the Manufacturing PMI release which contrary what you might think was in fact lower at 54.2 as opposed to the previous 56.6. But according to this measure there has been a sustained improvement.

The latest headline PMI figure extended the current sequence of expansion to two years.

However some care is needed because if we look at the official data the numbers have improved so far in 2019 but if we look back the two years to March 2017 we see that output is in fact a little lower than the 104.92 of back then. The current reading of 104.03 is also a fair bit lower than the around 110 of last July.

Trade Problems

This is a crucial area because this was the modus operandi of the IMF (International Monetary Fund). The problem is highlighted by these figures from the Bank of Greece.

In March 2019, the current account deficit came to €1.5 billion, up by €352 million year-on-year, as a result of an increase in the deficit of the balance of goods, and notwithstanding the improved services balance. Additionally, the primary and secondary income accounts deteriorated………..In the first quarter of 2019, the current account deficit came to €3.7 billion, up by €420 million year-on-year, as the improved services balance and primary income account only partly offset a deterioration of the balance of goods and the secondary income account.

When we consider the extent of the economic depression that Greece has been through this is a pretty shocking result. All that pain to still be in deficit. Even worse any sort of stabilisation and maybe improvement seems to come with more imports of goods.

 Imports of goods grew by 6.0% at current prices and 4.1% at constant prices. ( first quarter 2019).

The Greek shipping industry seems to be booming against the world trend but was unable to offset the higher imports.

Sea transport receipts rose by 18.9%.

Money Supply

The good news is that narrow money growth or M1 has been picking up in 2019. However at 6.3% in April it remains below that of the wider Euro area so that is not entirely heartening. The numbers were especially weak around the turn of the year so we cross our fingers for tomorrow’s economic growth release for the first quarter.

Also we need to be cautious as Greece does not have its own money supply so these are numbers which make more assumptions than usual. Central bankers will find something to cheer in this however.

According to data collected from credit institutions,(1) nominal apartment prices are estimated to have increased on average by 2.5% year-on-year in the fourth quarter of 2018, whilst in 2018 the average annual increase in apartment prices was 1.5%, compared with an average decrease of 1.0% in 2017.

If you want to see a bear market though this has provided it with the overall index being at 60.5 at the end of 2018 where 2007 =100.


There have been some changes in the Greek situation but some things look awfully familiar. From Kathimerini.

There will be no service on the Athens metro and tram from 9 p.m. on Monday as workers walk off the job to protest understaffing, cutbacks and the privatization of public transport.

Also considering its share price you might think Deutsche Bank would have better things to do than troll Greece.

Greece should not sacrifice the credibility and discipline it has earned with such sacrifice in the past few years to short-term measures, warns Ashok Aram, Deutsche Bank’s regional CEO for Europe.

The Greek economy was sacrificed on the altar of turning the public finances into a sustained surplus. It is hard to believe that it was supposed to return Greece to economic growth ( 2.1% was forecast for 2012) whereas the contraction approached 10% at times. Sometimes I have to pinch myself when I see the media proclaiming the views of those responsible for this as being of any use, but that is the world we live in. But the reality is that after a depression which contracted the economy by around a quarter we still have to look hard for clear signs of a recovery or if you prefer the shape of it is an L rather than a V.

The world can be so upside down at times that we cannot rule out we might see a Greek bond with a negative yield.

Weekly Podcast

I look at why bond yields have dropped so sharply in the past few weeks.


15 thoughts on “What does a Greek bond yield below 3% tell us?

  1. Any so called recovery wont be sustained imo the signs are of a global recession on its way. UK gilt yields fallen again today.


    As for the UK there is more evidence that the manufacturing stockpiling assisted the UK GDP the first quarter and manufacturing is now looking much more grim with workers being laid off.


    One piece of good news of late depending which side of the fence you are at, is Oil prices had fallen considerably the last month albeit higher at the moment; so that should feed into lower inflation later on I would hope. Its does take time for the petrol stations to pass on lower costs however.

    On the other side of the ocean Trump will be hoping for a hard BREXIT and walking away and do a deal quickly with the US as things are getting more and more worrying in the US bond yields suggest a number of interest rate cuts in the offing.


    All in all its batten down the hatches stock markets been falling for a while now and I think they have a lot further to fall.

  2. Hello Shaun,

    “The Greek economy was sacrificed on the altar of turning the public finances into a sustained surplus. It is hard to believe that it was supposed to return Greece to economic growth ”

    I disagree , it was to save the German and French TBTF banks, after that , nobody cared .

    Little improvement either in “reforms” as I understand it – So what price convergence?


    • Hi Forbin

      Deutsche Bank has survived but with its share price closing tonight for the first time with a 5 big figure at 5.98 Euros it would have been much better if it had been forced to address its problems. The French banks have been rather quiet of late that is usually not good!

      But in the end it is 2 peas in the same pod as Euro area intervened via the ECB then the EFSF/ESM in the Greek bond market. So losses were socialised and the Greek are being made to pay and how some of them have paid and look like continuing to pay for some time 😦

  3. Great blog as usual, Shaun.
    Regarding your podcast, the revised BEA estimate for the 2019Q1 real GDP growth rate was 0.8% or 3.2% at an annualized rate, down slightly from the initial estimate of 3.1%. I take your point about the problems in measuring real current government expenditures, although I think you are perhaps too pessimistic about measuring these properly. A US BEA concepts paper notes: “Some services, such as national defense, are pure public goods and are difficult to quantify, even in theory. However, other services, particularly for state and local governments, can be measured directly: for example, number of criminals arrested, number of fires extinguished, number of students educated, or number of patients treated. Some countries, including the United Kingdom, use caseload numbers as a way of quantifying real government output directly, but such measures have been subject to criticism.” The BEA has actually done a lot of work itself in developing direct measures of government services, but has been slow off the mark compared to the ONS in implementing changes.
    While you can make caveats about how any country’s GDP is measured, there isn’t much doubt that the US grew more strongly than the UK or any other G8 economy in 2019Q1. There’s a big difference between America’s 0.8% growth rate and the UK’s 0.5%, let alone Canada’s 0.1% (Ooh!!). You can’t explain it in terms of methodology differences.
    By the way, while the BEA uses a chain Fisher deflator to deflate nominal GDP the ONS, like all EU national statistical institutes, uses a chain Paasche deflator. Basically any formula that satisfies the time reversal test like Fisher (Edgeworth would be my preference) shows more inflation, and consequently a lower real GDP growth rate than using the Paasche formula. So the US growth rate is much higher than the UK’s despite a formula effect that favours the UK.
    Eurostat was wrong in its choice of deflator for nominal GDP, and the ONS really should choose something else, not necessarily Fisher like the BEA and StatCan, although Fisher would be better.

    • Hi Andrew and thank you

      Back in the days when the credit crunch began I had much my confidence in the GDP deflator than I do now. There have been various odd swings/revisions such as one in Spain in 2012/13. Some of the change in view is not entirely fair because the credit crunch has exacerbated the problems in two ways. Firstly it has made the situation more unstable and secondly more pressure is on each number.

      As to the US in Q1 I was troubled by the swing in the deflator which was the driver of much of the growth recorded. We will have to see how it plays out but the second estimate also brought this as another possible hint of trouble.

      “Real gross domestic income (GDI) increased 1.4 percent in the first quarter”

      I have heard plenty of discussions about the formulae but not as explicit as your comment about the effect on GDP. If the UK and Europe were to change to a better system what do you think would be the scale of the impact on GDP?

      • Thank you for your interest, Shaun. The 1998 paper “EFFECTS OF USING VARIOUS MACRO-INDEX FORMULAE IN LONGITUDINAL PRICE AND VOLUME COMPARISONS” by my former supervisor Bohdan Szulc provides some indication. If you do the math, for final domestic demand from 1951 to 1986 the annualized inflation rate of the chain Paasche deflator was 4.68%, the chain Fisher deflator 4.69%. For the industry product price indices (this is the Canadian label for a producer price index for manufacturing), where theoretically one would expect smaller divergences, the difference is much greater. The annualized inflation rate of the chain Paasche index is 5.99% and of the chain Fisher price index 6.09%. The difference is the much higher level of disaggregation for the IPPI comparison than for the FDD comparison. Perhaps there have been more recent or more pertinent studies since then. For now, I would think it reasonable to say that the annualized US real GDP growth rate for 2019Q1 using the same formula as the ONS might be 3.2% or even 3.3% instead of 3.1%, although probably not as high as 3.4%.

  4. To answer the title question; it proves that Greece has been annexed by the German Empire, and that its people are deemed unworthy of voting.

    • well I guess that’s convergence of a kind 😉

      and its a Franco-German Empire , when the German people realize they are going to be paying reparations for WW2 forever ……. eheheheh


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