GGB Investors Demand 7% Minimum Yield As Greek Government Demands Bailout From Rich Expats
The bond deal that was so very much rumored was going to get done in mid (and at most late) February, never really took off. The reason: with each passing day, investors (what little is left of them) are demanding a greater and greater premium, as the country now has less than 3 weeks of cash left at the current cash burn rate. And this is before even counting for €16 billion in maturities coming up through May. According to BusinessWeek the most recent expected benchmark pricing is in the 7%+ range: anything below that liekly will not price.
For now, the tensions over Greece haven’t locked it
out of the debt markets, provided it’s willing to pay up, said Michiel
De Bruin at F&C Investments.
“We would consider participating in the new bond
sale if there’s a good premium” over existing debt, said De Bruin, who
helps manage $28 billion of assets as head of euro government bonds at
the Amsterdam-based firm. “If they show progress on cutting the
deficit, people will be more comfortable with Greek risk,” he said.
De Bruin estimates the country will have to pay a
so-called spread of 30 basis points to 50 basis points more than the
yield on its current 10-year benchmark bond, which traded at 6.38
percent on Feb. 26, according to data compiled by Bloomberg.
Not only that, but Greece has likely burned bridges with the last round of bond investors, who will think long and hard before giving Greece any more money.
Some investors in Greece’s five-year bond sale on Jan. 25 were
allocated more notes than they wanted, and the securities fell when
fund managers divested their holdings. The decline pushed the yield on
the notes up 37 basis points, or 0.37 percentage point, according to
data compiled by Bloomberg.
Another useful, if not too surprising revelation: the ongoing rating agency downgrade barrage does not need to lock out Greek bonds from ECB collateral - the cuts already may have already done necessary (and sufficient) damage. It turns out presumably sophisticated funds still make their investment decisions based on rating agency ratings.
Kokusai’s Global Sovereign Open fund, the biggest
investor in Greek bonds last year among companies that make regulatory
filings, sold all of its holdings at the end of 2009 after Standard
& Poor’s downgraded the nation to BBB+ from A- because of its high
debt levels, said Masataka Horii, a co-manager of the Tokyo-based
company. Many investors limit the amount of debt of a given rating
their funds can hold.
New York-based S&P and Moody’s Investors
Service, which also cut Greece’s sovereign credit rating in December,
said last week they may reduce Greece’s ratings again should the nation
fail to implement a deficit-reduction program. EU inspectors, in Athens
to discuss the plan with the government, have asked for additional cuts
of 3.6 billion euros to 4.8 billion euros, the Euro2day Web site
reported Feb. 25.
It is not all bad news though: the Greek head of parliament has come up with a novel idea (now that a German rescue is pretty much a moot point) one used for generations by such countries as India, Nigeria, and Mexico - asking expats to fund the deficit.
Philippos Petsalnikos, who heads the Greek parliament, said the
wealthy diaspora could contribute to a "support fund" established for
the sole purpose of slashing Greece's ¤300bn debt and the union's
biggest budget deficit.
Members of the 7-million strong
expatriate community have made fortunes in real estate and finance in
Australia, Britain and South Africa and are among the biggest financial
donors to leading politicians in the US.
"Such a fund could work
through individual voluntary contributions and be headed by a
personality of broad public appeal beyond party politics," said
Petsalnikos, a prominent member of the governing socialist Pasok party.
politician made the suggestion as investor fears grew over the
government's ability to cut the country's deficit from 12.7% of GDP to
8.7% by the end of the year.
So even as Greeks everywhere take out their checkbooks and send €0.69 checks payable to cash c/o Greek corruption committee, we can't wait for the domestic iteration to hit the Congress. Surely the day is coming when the deficit sink fund will garnish a tithe out of each and every paycheck, which at this rate will mostly be coming out of the government anyway.
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