greek fixed income monitor

GREEK FIXED INCOME MONITOR: GOVERNMENT BOND INDEX RECORDING NEW HIGH

MAY 2016

Ilias Lekkos

Veni Arakelian

Dimitria Rotsika

Haris Giannakidis

ECONOMIC ANALYSIS & INVESTMENT STRATEGY

Piraeus Bank Government Bond Index: {PBGGGSBI Index<GO>}

Weighted Average Yield: {PBGGGWAY Index<GO>}

Piraeus Bank Government Bond Index : {PBGGGCBI Index<GO>}

Weighted Average Yield : {PBGGIWAY Index<GO>}

CONTENTS

2

Latest Developments in the Greek Bond Market

Greek Government Bonds Interest Rate Curve Estimation

Piraeus Bank Greek Government Bond Index

Piraeus Bank Greek Corporate Bond Index

LOWER ECONOMIC UNCERTAINTY AND GAINS IN THE GOVERNMENT BOND MARKET…

3 Source: Piraeus Bank Research, Bloomberg

• A noteworthy upward trend was recorded by the Government Bond Index in May that

reached a record high of 401 points. Similar levels have not been recorded again

since the construction of the index. Furthermore, for the first time, the index recorded

a weighted average yield of 7.1%, which is well below its level one month ago. The

agreement for the completion on the Greek program evaluation and the three-point

plan for debt relief, gave further impetus to the upturn of the index which had

already started in mid-March.

• Although market valuations of the government bond market seem to have

discounted the positive developments in the program evaluation despite

considerable delays, additional references concerning the Greek debt led to further

gains. The reduction of economic uncertainty and the imminent restoration of

financing for the Greek economy had a significant impact on the markets of both

government and corporate bonds. Specifically, in May the Government Bond Index

recorded an increase of 8.33% to 397 points. Since the beginning of the year, the

index’s value has increased by 10.1%.

• One of the main driving factors that is anticipated to further support the positive

dynamics observed in May, is the ECB's stance with regard to the decision on waiver

lift of Greek government bonds, which is expected to take place before the end of

June. Under the optimistic scenario of relatively low political risk and given the loose

monetary policy followed by the ECB, yields on Greek government bonds may decline

far more than those of European bond issues which are already priced at very low

levels (Portugal, Spain, Italy).

Government Bond Index

Indices Performance

0

50

100

150

200

250

300

350

400

450

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

0 5 10 15

Piraeus Bank Corporate exFinancials Bond Index

Piraeus Bank Government BondIndex

Bloomberg Corporate High YieldBond Index

Bloomberg Government BondIndex

MoM

…WITH POSITIVE RETURNS FOR CORPORATE BONDS AS WELL.

• A six-month high was also recorded for the Corporate Bond Index with substantial

gains for almost all of the corporate issues. Specifically, the index reached 113.8

points in late May, a gain of 4% compared to the same period of the previous month.

However, since the beginning of the year the value of the Corporate Bond Index has

risen only by 1% in contrast to the European high-yield bonds market, which has

realized an increase of 3.82%.

• In June, TITAN announced a new bond issue worth € 250 million with 5 Year maturity.

The proceeds of this issue are to be used to refinance the bond with coupon of 8.75%

that matures on 19/01/2017. This move aims to reduce the company's borrowing

costs by taking advantage of better valuations in the corporate bond market.

• Despite the positive assessment of markets for the majority of the bonds included in

the corporate bond index, following the agreement on May 24 and the decrease in

uncertainty about the liquidity of the Greek financing system, comparatively higher

profits were recorded for the PPC and ELPE bonds due to the developments in oil

prices.

• According to ELPE’s published results for the first quarter of 2016, the price

stabilization of oil led to positive refining margins boosted by the inelasticity of

demand for derivative products (e.g. gasoline). Similarly, despite the decrease of 5.6%

in electricity demand in the first quarter of 2016 and the decrease of PPC sales by

10.1% (aggravated by the fall in the company's share of the retail market from 97.1%

to 94.1%) the reduction of energy costs due to favorable international conditions led

to an increase in profits (before taxes) of 58.6%.


Corporate Bond Index

Corporate Bond Index (MoM Returns)

90

95

100

105

110

115

120

125

Ap

r-15

May

-15

Jun

-15

Jul-

15

Au

g-15

Sep

-15

Oct

-15

No

v-15

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-16

May

-16

-15

-10

-5

0

5

10

15

Ap

r-15

May

-15

Jun

-15

Jul-

15

Au

g-15

Sep

-15

Oct

-15

No

v-15

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-16

May

-16

GREEK CORPORATE BOND PERFORMANCE

• The two worst monthly performances were recorded by the following bonds:

TITAN (-0.72%) with maturity in 2017

OTE (-0.38% ) maturing at end-2016

• The three best performance were recorded by the following bond issues:

PPC (13.13%) maturing in 2019

ELPE (11.72%) maturing in 2019

PPC (10.66%) maturing in 2017

• The maturing OTE bond on May 20, 2016 led to the adjustment of the Corporate

Bond Index. Currently, the Corporate Bond Index consists of 16 bonds issues.

• There were coupon payments for both PPC bonds on May 1, 2016, for the ELPE

bond on May 10, 2016 and for the bonds of INTRALOT, MOTOR OIL and

FRIGOGLASS on May 15, 2016.


Monthly Performance of Corporate Bond Index Members

-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

COCA-COLA (2020)

OTE (2018)

ELPE (2017)

INTRALOT FINANCE

FRIGOGLASS

COCA-COLA (2016)

TITAN (2017)

PPC (2019)

PPC (2017)

INTRALOT CAPITAL

MOTOROIL

TITAN (2019)

ELPE (2019)

OTE (2020)

OTE (2019)

COCA-COLA (2024)

DEVIATIONS BETWEEN MACROECONOMIC DATA RELEASES AND BOND VALUATIONS…

• It is important to note that in May we observed deviations between the

macroeconomic data for the Greek economy and bond market valuations.

For instance, the Economic Sentiment Indicator (ESI) remains at similar

levels to those of the previous month as opposed to the Corporate Bond

Index which exhibited a strong positive trend after the agreement on the

evaluation of the Greek program. Specifically, while the Corporate Bond

Index increased by 4%, the ESI fell from 90.3 points in April to 89.7 points

in late May, signaling a marginal slowdown in the economic climate.

Furthermore, indicative of the deviations between market valuations and

macroeconomic data is the marginal downward revision of the GDP of the

Greek economy, which declined by 1.4% on a YoY basis in the first quarter

of 2016.

• Despite a marginal slowdown in macroeconomic data and expectations

about the economy, credit risk is significantly reduced with the 5-year CDS

falling by 273 basis points from its level of 1241 basis points in late April.

From the projection of the effect of credit risk on the performance of the

Government Bond Index weighted yield, we observe a pronounced

downward movement in realized yields relative to our estimates.

Specifically, the deviation of the statistical model estimate relative to the

actual yield is around 100 basis points, reflecting the influence of other

factors such as the ECB's stance on lifting the waiver for government bond

issues on market valuations.


Correlation of Corporate Bond Index & ESI

Government Bonds Yield to Maturity Model Estimate

70

75

80

85

90

95

100

105

110

100

105

110

115

120

125

Feb

-13

Mar

-13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug-

13

Sep

-13

Oct

-13

No

v-1

3D

ec-1

3Ja

n-1

4Fe

b-1

4M

ar-1

4A

pr-

14

May

-14

Jun

-14

Jul-

14

Au

g-1

4Se

p-1

4O

ct-1

4N

ov-

14

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6M

ar-1

6A

pr-

16

May

-16

Corporate Bond Index (LHS) ESI (RHS)

6

7

8

9

10

11

12

13

Aug

-15

Sep

-15

Oct-

15

No

v-1

5

De

c-1

5

Ja

n-1

6

Feb

-16

Mar-

16

Apr-

16

May-1

6

Government Bond Index Yield Model Estimate (CDS 5Y SR in USD )

… DESPITE THE REDUCED COST OF SHORT-TERM DEBT…

• From the assessment of the estimated interest rate curve of Greek government bonds we observe a significant downward shift in short–term interest rates resulting from

the change in bond market valuations. At the short end of the curve, we observe larger declines in interest rates relative to those at the long end of the curve as the

market strengthened its expectations for inflation rate increases over long-term investment horizons. Due to the improvement in expectations for the Greek economy, at

the end of May, 3-Year interest rates recorded a fall of around 148 basis points (bps). Similarly, interest rates on medium-term maturities moved downward by 118 bps for

the 5-Year tenors and 96 bps for issues with maturity of 10 years. Bond issues with maturity greater than 20 years exhibited smaller but significant reductions in the range

of 17 (for the 26-Year tenor) and 55 (20-Year tenor) bps.

• The estimation of the one month forward rate curve, advocates for a flat yield curve without significant changes throughout the interest rate curve. In particular, short-

term (2-3 years) forward rates for the next month are expected to be close to 7.33%. Similarly, regarding market expectations for the mid-section of the curve, no

significant differences are noted relative to current levels with forward rates for the medium-term maturities ranging between 6.9% (10-Year) and 7.2% (5-Year). Compared

with market expectations in April, short and medium-term forward rates recorded a significant downward shift, whereas forward rates for the longest maturities (over 17

years) increased by an average of 85 bps compared to April levels.


Estimated Forward Rate Curve Estimated Interest Rate Curve

-200

-180

-160

-140

-120

-100

-80

-60

-40

-20

0

6.00

6.50

7.00

7.50

8.00

8.50

9.00

2 4 5 7 9 10 12 13 15 17 18 20 22 23 25

bps percentage points

Maturity (in years)

Change (RHS) Spot Rates 31/05/2016 Spot Rates 28/04/2016

-150

-100

-50

0

50

100

150

200

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2 4 5 7 9 10 12 13 15 17 18 20 22 23 25

bps percentage points

Maturity (in years)

Change (RHS) Forward Rates 31/05/2016 Forward Rates 28/04/2016

…MAY RESULT IN PREMATURE FUTURE ECONOMIC EXPECTATIONS.

• In May, the slope of the yield curve returned to positive territory after a period of two months, which was characterized by high uncertainty in financing and

liquidity of the country. In particular, in May the 10-Year / 3-Year term spread ranged between -166 and 60 basis points. The reversal of the negative slope of

the yield curve was driven by the strong decline in interest rates of short-term maturities relative to their high levels during the previous period. However, a

temporary reversal of the slope of the yield curve was also recorded in March, which was not sustained for a reasonable time span. Since the 30-day moving

average for the 10-Year / 3-Year spread is a more reliable reversal signal of bond market expectations and given that its current level remains in negative

territory at -63 bps, it is still too early to make any tangible assessment about the future economic prospects of Greece.

• The improvement in bond market conditions due to lower uncertainty led to a fall in volatility in the yields of 10-Year and 3-Year bonds in late May. Specifically,

the volatility of the 3-Year bond fell 11 points from 108.7 points at the end of the previous month. A decline was also recorded for the volatility index of 10-Year

bond, which fell 7 points, reaching the level of 28.61 points.


Bond Yield Annualized Volatility Term Spread (10 Year / 3 Year)

-300

-250

-200

-150

-100

-50

0

50

100

150

200

250

2-M

ar-1

6

9-M

ar-1

6

16-

Mar

-16

23-

Mar

-16

30-

Mar

-16

6-A

pr-

16

13-

Ap

r-1

6

20-

Ap

r-1

6

27-

Ap

r-1

6

4-M

ay-1

6

11-

May

-16

18-

May

-16

25-

May

-16

bas

is p

oin

ts

Term Spread (bps) 30 day MA

0

20

40

60

80

100

120

140

2-M

ar-1

6

9-M

ar-1

6

16-

Mar

-16

23-

Mar

-16

30-

Mar

-16

6-A

pr-

16

13-

Ap

r-16

20-

Ap

r-16

27-

Ap

r-16

4-M

ay-1

6

11-

May

-16

18-

May

-16

25-

May

-16

per

cen

tage

po

ints

Ann. Vol 3Y Ann. Vol 10Y

PIRAEUS BANK GREEK GOVERNMENT BOND INDEX

• The lowest price in May for the index was 365.35, while the highest price was 401.34.

• The value of the Greek Government Bond Index on May 31st was 8.33% higher than

in the previous month. The index’s average (MoM) return in the same month was

9.23%.

• From the analysis of historical data we observe that the index MoM return at the end

of May was higher than 65% of realized past returns. Returns, lower or equal to the

level of 8.33% were observed on average only 20 days during a month.

*(Returns with low frequency of occurrence have a smaller probability of being realized in the near future).


MoM Return Histogram Index Evolution May 2016 (Base Date: 9/3/12=100)

31-May

Members 22

Market Capitalization (EUR bn.) 35.70

Weighted Average Yield 7.27

Weighted Average Coupon 3.22

Weighted Average Maturity 13.51

Weighted Average Duration 9.41

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

150

200

250

300

350

400

450

1-A

pr-

16

8-A

pr-

16

15-

Ap

r-1

6

22-

Ap

r-1

6

29-

Ap

r-1

6

6-M

ay-1

6

13-

May

-16

20-

May

-16

27-

May

-16

Price (LHS) Yield (RHS)

0%

2%

4%

6%

8%

10%

12%

-39 -34 -29 -24 -19 -14 -9 -3 2 7 12 17 22 28 33 38 43 48 53

Fre

qu

en

cy

MoM Returns (in percentage points)

PIRAEUS BANK GREEK GOVERNMENT BOND INDEX


Index Composition– May 2016

Name Issue Amount

(€ bn)

Amount

Outstanding

(€ bn)

Currency Coupon Coupon Type Coupon

Frequency

Next Coupon

Payment Issuance Date Maturity

Credit Rating

(Standard &

Poor's)

Last Price – 31

May

Yield - 31

May

Hellenic Republic Government Bond 2.97 1.79 € 3.000 Κλιμακωτό Ετήσια 24/02/17 24/02/2012 24/02/2023 B- 79.3 7.4




















Hellenic Republic Government Bond 4.03 4.03 € 4.750 Σταθερό Ετήσια 17/04/17 10/04/2014 17/04/2019 B- 93.4 7.4

Hellenic Republic Government Bond 2.09 2.09 € 3.375 Σταθερό Ετήσια 17/07/16 10/07/2014 17/07/2017 B- 96.2 7.0

PIRAEUS BANK GREEK CORPORATE BOND INDEX

• The lowest price in May for the index was 109.4 while the highest price was 113.78.

• The value of the Greek Corporate Bond Index on May 31st had increased by 4%

compared to the previous month. Moreover, the index’s average (MoM) return in the

same month was 1.81%.

• From the analysis of historical data we observe that the index MoM return at the end

of May was higher than 95% of realized past returns. Returns, lower or equal to the

level of 4% were observed on average 29 days during a month.

*( Returns with low frequency of occurrence have a smaller probability of being realized in the near future).


MoM Return Histogram Index Evolution May 2016 (Base Date : 02/01/13=100)

31-May

Members 16

Market Capitalization (EUR bn) 6.67

Weighted Average Yield 4.85

Weighted Average Coupon 5.19

Weighted Average Maturity 3.19

Weighted Average Duration 2.80

3.0

4.0

5.0

6.0

7.0

8.0

9.0

107.0

108.0

109.0

110.0

111.0

112.0

113.0

114.0

115.0

2-M

ar-16

9-M

ar-16

16

-Mar-1

6

23

-Mar-1

6

30

-Mar-1

6

6-A

pr-1

6

13

-Ap

r-16

20

-Ap

r-16

27

-Ap

r-16

4-M

ay-16

11

-May-1

6

18

-May-1

6

25

-May-1

6

Price (LHS) Yield (RHS)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Fre

qu

en

cy

MoM Returns (in percentage points)

PIRAEUS BANK GREEK CORPORATE BOND INDEX


Index Composition– May 2016

Company Name

Issue

Amount

(€ bn)

Amount

Outstanding

(€ bn)

Currency Coupon Coupon Type Coupon

Frequency

Next Coupon

Payment

Issuance

Date Maturity

Credit Rating

(Standard &

Poor's)

Last Price – 31

May

Yield - 31

May

COCA-COLA HBC FINANCE BV 800.00 800.00 € 2.375 Σταθερός Ετήσια 18/06/16 06/10/2013 06/18/2020 BBB+ 106.70 0.58

OTE PLC 700.00 650.00 € 7.875 Σταθερός Εξαμηνιαία 07/08/16 01/29/2013 02/07/2018 B+ 108.10 2.90

HELLENIC PETROLEUM FINAN 500.00 500.00 € 8.000 Σταθερός Εξαμηνιαία 10/11/16 04/29/2013 05/10/2017 102.79 4.92

INTRALOT FINANCE LUXEMBU 325.00 325.00 € 9.750 Σταθερός Εξαμηνιαία 15/08/16 08/01/2013 08/15/2018 B 106.59 1.20

FRIGOGLASS FINANCE BV 250.00 250.00 € 8.250 Σταθερός Εξαμηνιαία 15/11/16 05/13/2013 05/15/2018 CCC+ 62.99 36.29

COCA-COLA HBC FINANCE BV 600.00 385.38 € 4.250 Σταθερός Ετήσια 16/11/16 11/09/2009 11/16/2016 BBB+ 101.89 0.11

TITAN GLOBAL FINANCE PLC 200.00 197.00 € 8.750 Σταθερός Εξαμηνιαία 19/07/16 12/17/2012 01/19/2017 BB 104.41 1.67

PPC FINANCE PLC* 500.00 500.00 € 5.500 Σταθερός Εξαμηνιαία 01/11/16 04/30/2014 05/01/2019 CCC- 86.08 11.23

PPC FINANCE PLC* 200.00 200.00 € 4.750 Σταθερός Εξαμηνιαία 01/11/16 04/30/2014 05/01/2017 CCC- 96.77 8.49

INTRALOT CAPITAL LUX* 250.00 250.00 € 6.000 Σταθερός Εξαμηνιαία 15/11/16 04/30/2014 05/15/2021 B 92.88 7.76

MOTOR OIL FINANCE PLC* 350.00 350.00 € 5.125 Σταθερός Εξαμηνιαία 15/11/16 05/15/2014 05/15/2019 102.35 3.86

TITAN GLOBAL FINANCE PLC* 300.00 287.17 € 4.250 Σταθερός Εξαμηνιαία 10/07/16 07/03/2014 07/10/2019 BB 102.27 3.47

HELLENIC PETROLEUM FINANCE* 325.00 325.00 € 5.250 Σταθερός Εξαμηνιαία 04/07/16 06/25/2014 07/04/2019 99.14 5.56

OTE PLC* 700.00 700.00 € 3.500 Σταθερός Ετήσια 09/07/16 07/07/2014 07/09/2020 B+ 100.82 3.28

OTE PLC** 350.00 350.00 € 4.375 Σταθερός Ετήσια 02/12/16 02/12/15 02/12/19 B+ 103.51 3.29

COCA-COLA HBC FINANCE BV*** 600.00 600.00 € 1.875 Σταθερός Ετήσια 11/11/16 10/03/16 11/11/24 BBB 103.95 1.38

* 2014 Issues ** 2015 Issues *** 2016 Issues

FIXED INCOME MONITOR

13

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It is duly stated that: the investments described in the present document include investment risks, among which the risk of losing the entire capital invested. In particular, it is stated that;

a. The figures presented herein refer to the past and that the past performance is not a reliable indicator of future performance.

b. In case the figures refer to simulated past performance, that past performance is not a reliable indicator of future performance.

c. The return on investments might be positively or negatively affected as a result of currency fluctuations, in case the figures are denominated in a foreign currency (other than Euro).

d. Any forecasts in relation to future performance, may not be a reliable indicator of future performance.

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