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GGB Investors Demand 7% Minimum Yield As Greek Government Demands Bailout From Rich Expats

Tyler Durden's picture




 

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.

The
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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Sun, 02/28/2010 - 23:49 | 249163 Stranger
Stranger's picture

How is Greece supposed to cut the deficit when the biggest item in the deficit, debt service, is skyrocketing from interest rate hikes on its debt?

Mon, 03/01/2010 - 00:18 | 249189 RhoRhoRhoBoat
RhoRhoRhoBoat's picture

Wow you have no knowledge of how sovereign markets function.  If the yield on a bond increases, the coupon does not.  This only effects new issuance, which is a fraction of the outstanding.  Practically, debt service is barely increasing.

Mon, 03/01/2010 - 00:20 | 249194 Stranger
Stranger's picture

You have no knowledge of how budgeting works. But neither do the Greeks.

Mon, 03/01/2010 - 09:35 | 249330 SWRichmond
SWRichmond's picture

roll, anyone?

Sun, 02/28/2010 - 23:59 | 249169 Missing_Link
Missing_Link's picture

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.

 

Greek budget deficit to be voluntarily funded by expatriates, leprechauns, and magical gold-coin-defecating unicorns.  Story at 11.

Mon, 03/01/2010 - 10:14 | 249353 mikla
mikla's picture

+1 HAAHAHAHAAHAHAAA!

The funniest thing is yes, that is exactly what they are proposing.  Wow.

Mon, 03/01/2010 - 15:39 | 249806 Silver-Is-Better
Silver-Is-Better's picture

That is probably the funniest response I have ever read on zh. Thanks for the best laugh in a long time.

Spoken with a bit of truth also.

Mon, 03/01/2010 - 00:06 | 249179 Irrational Exub...
Irrational Exuberance's picture

I don't know why there is such a big deal being made of this!  Our own Federal Reserve will be paying the current bonds owed, and purchasing their new offering.  This was very well documented on ZH earlier.

Mon, 03/01/2010 - 00:07 | 249181 vanderrook
vanderrook's picture

Leo,

 

Time to ante up...?

Mon, 03/01/2010 - 00:09 | 249182 junkyard dog
junkyard dog's picture

This reminds me of the old Tarzan movies when the great white hunters would fall into the quicksand. While they were slowly sinking, the natives would throw to them giant vines to hold onto and they tried to pull them out. But alas, the natives were never strong enough, or so they acted. 

 

Mon, 03/01/2010 - 00:40 | 249208 Stevm30
Stevm30's picture

Oh yes, I'm a wealthy expatriate.  Appeals to my patriotism to support Greece's petulant unions "beyond party politics" who DEMAND 14 months of pay for 12 months of "work" really pulls at my heart strings... no really...

Mon, 03/01/2010 - 02:55 | 249249 carbonmutant
carbonmutant's picture

 It's fascinating that bond holders would take such a risk for only 7%.

In the current market the bondholders are the government's bitches.

Mon, 03/01/2010 - 08:48 | 249313 Anonymous
Anonymous's picture

According to Moody's, et al, there isn't much risk there. Don't they rate Greek bonds just one notch under investment grade? That being the case, every high yield bond fund on the planet is authorized to buy this debt. Investors love these funds because they're the only place to get a decent return.

Mon, 03/01/2010 - 03:07 | 249252 Anonymous
Anonymous's picture

> the ongoing rating agency downgrade barrage does not need to lock out Greek bonds from ECB collateral

New GGBs will be locked out from ECB collateral from 1 March at their *current* ratings, no?:

http://www.paulhastings.com/assets/publications/1471.pdf?wt.mc_ID=1471.pdf

And will remain locked out until and unless they can (laff) attract two AAA ratings at issue...

Mon, 03/01/2010 - 03:36 | 249258 Bylinka (not verified)
Bylinka's picture

Greece, what Greece?

Barack Obama's home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," said Representative Suzie Bassi. "We are next to bankruptcy. We have a $13bn hole in a $28bn budget."

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7338857/Dont-go-wobbly-on-us-now-Ben-Bernanke.html

Mon, 03/01/2010 - 09:24 | 249322 Anonymous
Anonymous's picture

Start writing your reps right now to forestall the option of a federal-level bailout for individual states.

Mon, 03/01/2010 - 10:24 | 249358 Bylinka (not verified)
Bylinka's picture

Dear Anonymous, If the Feds are cleaver enough they should  be reading ZH already, if they are not - I can not help them.

Mon, 03/01/2010 - 06:35 | 249279 aus_punter
aus_punter's picture

The idea of an expat bond fund is so ludicrous it is beyond belief - does he think these people left in the first place because they wanted to support their government ?!?!

Mon, 03/01/2010 - 10:19 | 249357 perchprism
perchprism's picture

 

Appeals to patriotism are the final refuges of scoundrels.  Look for the same to happen here when our 401-K's/IRAs eventually become annuitized through forced seizure.  It will be prefaced with patriotic appeals to buy Treasuries.  When that doesn't do the trick, outright "nationalization" will be ordered. 

Mon, 03/01/2010 - 08:39 | 249309 Anonymous
Anonymous's picture

It is called the Japanes Interest Rate Trap on Zombified Debt that will not go away....

Better to make the debt go away....by debt destruction...versus being the walking dead for the next 25 plus years....

This is the decision being made....

The main decision being made is that there will be no retirement vehicles because the capital requirements fow low rates make living off of interest impossible.....

And since capital has to work....everyone has to become a trader ....trading something....

This is why a newly constructed world wide stock exchange that is far more efficient and not taxable is of major importance....in the name of efficient capital and innovation....and wealth distribution....

Mon, 03/01/2010 - 08:50 | 249314 Anonymous
Anonymous's picture

Has anyone thought of a bake sale? I'm sure the Germans would have second thoughts after trying some of those delicious pastries that the Greeks have the Albanians make.

Fri, 04/16/2010 - 10:37 | 303883 Tom123456
Tom123456's picture

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