Mary-Lynn Cesar, Kapitall: Greek yields fell to a record low on Friday, signaling rising confidence. Will Greek stocks benefit?
Yields on 10-year Greek bonds dropped to their lowest level in almost four years on Friday, according to a new report from MarketWatch. The yield fell to 6.84%, the first instance of a below 7% yield since April 2010. Greece received its bailout from international lenders the following month.
The Financial Times writes that many strategists view yields in excess of 7% as "unsustainable" because the cost of repaying debt at that level becomes too burdensome for governments. Bond yields and prices have an inverse relationship, so when yields are falling, prices are actually rising. Bond prices increase because more investors are buying the debt security.
The drop in bond yields is the latest piece of good news for Greece. Earlier in February, data from the Hellenic Statistical Authority showed that the nation's economy contracted less than expected. The agency reported a contraction of 2.6% in the fourth quarter of 2013, which was less than the 3% decline experienced in the previous quarter. The figure also marked the country's best performance since the first quarter in 2010 when the economy shrank by 1.0%.Unemployment and debt remain major issues for Greece, as the country continues to lead the European Union in both. Greece's unemployment rose to 28% in November from 26.3% a year earlier. Eurostat also recorded an increase in Greece's debt during the third quarter of 2013, rising by 3% year-over-year to 171.8%. Investment Ideas As investors return to Greece for bonds, we decided to look for Greek stocks that could be similarly deserving of such interest. We began by constructing a universe of Greek stocks, which we subsequently narrowed down by running two screens that indicate upside potential.