Greece Raised to Caa3 by Moody’s on Fiscal Progress

Greece’s credit rating was raised two levels by Moody’s Investors Service, which cited the country’s progress in fiscal consolidation and an improving economic outlook.

The country’s government bond rating was raised yesterday to Caa3 from C and given a stable outlook, Moody’s said in a statement. The ratings company said it expects Greece to “achieve (and possibly outperform) its target of a primary balance in 2013, and record a surplus in 2014.” A “cyclical recovery in the economy” is another reason for the credit grade increase, Moody’s said.

“The Greek economy is bottoming out after nearly six years of recession,” Moody’s said in the statement. The ratings company said it expects the government’s budget focus to remain on savings generated from structural reform measures as opposed to further spending cuts.

Under the accord with the troika of the European Commission, International Monetary Fund and ECB, posting a primary surplus will qualify Greece for additional debt relief.

The yield on Greek benchmark 10-year bonds was down 0.15 percent at 8.78 percent today, having fallen from a peak of 34.96 percent in December 2011.

Investors often ignore ratings, as evidenced by the rally in Treasuries after the U.S. lost its top grade at Standard & Poor’s in 2011. Yields on sovereign securities last year moved in the opposite direction from what ratings suggested in more than half of 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg.

Greece’s economy is expected to shrink 0.5 percent in 2014 and expand 1 percent in 2015, Moody’s said in the statement. The budget surplus is expected to be at about 1.5 percent of gross domestic product next year, according to the statement.

The Moody’s ranking is nine levels below investment grade, while Standard & Poor’s and Fitch Ratings each rate Greece B-, which is six notches below the junk threshold.

Before it's here, it's on the Bloomberg Terminal.