Greece’s credit rating was raised two levels by Moody’s Investors Service, which cited a better fiscal and economic outlook for the country that was at the center of Europe’s debt crisis.

The country’s long-term local currency debt was upgraded to Caa1 from Caa3, New York-based Moody’s said in a statement. The nation’s short-term debt rating is unaffected and remains not prime, or NP.

The significant improvement in fiscal position over the past year and the view that the government remains committed to fiscal consolidation underpin a forecast of a gradual decline in public debt, Moody’s said. The credit-rating company also cited gains in Greece’s economic outlook, based on both a cyclical recovery and the progress made in implementing structural reforms and rebalancing the economy, further supporting the downward trajectory of the public debt ratio.

Greece’s economy will grow this year for the first time in seven years, the European Commission predicts. The country received two rescue packages with pledges totaling 240 billion euros ($322 billion) from the euro area and the International Monetary Fund and underwent the biggest sovereign debt restructuring in history in 2012.

Greek bonds have since rallied, with the yield on the 10- year benchmark falling as low as 5.59 percent last month, compared with an historic high of 44.21 percent in March 2012, on the eve of the restructuring. That allowed the government to tap bond markets twice this year, ending a four-year exile, raising 4.5 billion euros in three- and five-year securities.

Debt Ratio

Moody’s, which had raised Greece to Caa3 from C on Nov. 29, said it expects debt to gross domestic product to peak this year and then start to fall in 2015.

In almost half the instances, yields on government bonds fall when a rating action by Moody’s and S&P suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August 2011, bonds rose and pushed Treasury yields to record lows.

Standard & Poor’s rates Greece B- and Fitch Ratings raised the country to B from B- on May 23, still below the junk threshold.

Investors routinely ignore ratings companies’ decisions. In almost half the instances, yields on government bonds fall when a rating action by Moody’s and S&P suggests they should climb, or they increase even as a change signals a decline, according to data compiled in 2012 by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August 2011, bonds rose and pushed Treasury yields down to records.