Earlier this month, some headlines noted that Greece’s 10-year government bond yields fell below that of US Treasuries of the same maturity. This came on hopes of ECB easing as well as a victory of the New Democracy party in the most recent election. Today, Greek government bond yields have fallen further to fresh lows with the 10-year yield now a hair under 2% while the US 10 year yields 2.05%. This is the first time since Q4 of 2007 that Greek 10-year debt has had a lower yield than the same maturity in the US. Where they currently stand is a far cry from earlier in the decade when Greek yields surged when the country was dealing with bankruptcy.
But there is one caveat to this comparison. These yields are in local currency. Even though the yields may appear to be relatively similar, controlling for currency differences, Greece’s bond would yield more. If the Greek 10 year (EUR denominated) was swapped to USD it would actually have a much higher yield than the US treasury yield (USD denominated). To be specific, swapping cashflows from EUR to USD shows the Greek 10 year currently yields 4.75% in USD equivalent, more than 250 bps over the 10y UST yield.
The biggest reason for the difference in yields across the two currencies is that the benchmark/policy rates are different. The ECB’s current policy rate is set at -0.4% whereas in the US that rate is significantly higher at 2.4%. Relative to their respective benchmarks, the Greek yield is actually higher, especially compared to other Eurozone countries; some of which even have negative yields at the ten-year maturity. In the table below, we show these rates for the 23 countries in our Global Macro Dashboard also adding in Greece. In other words, while the fact that the lower yield on Greek 10-year debt doesn’t seem to make sense at face value, the comparison in yields is not necessarily like-for-like. Start a two-week free trial to Bespoke Institutional to access our Global Macro Dashboard and much more.