Greece Proceeds To Make Bond Shorting Impossible

Tyler Durden's picture

In their last solvent days, the Greeks sure are learning fast from the US - first America makes shorting prohibitive (and where it is still possible, various repo desks tend to force short covering at their whim just as the market is about to crash and burn), and now Greece has proceeded to make shorting of Greek bonds impossible. After realizing that its CDS scapegoating campaign was the most miserable and idiotic plan ever conceived, the lunatics who have taken over the Greek insane asylum have now decided to make shorting of GGBs virtually impossible. This is ostensibly the last step before the total collapse as the liquidity that will be removed will make swings in GGB so big it will make the holders of options in FNM, FRE, C and AIG green with envy. The mechanism by which Greece seeks to accelerate it own demise, is by introducing daily repurchase auctions to cover short positions, according to Reuters. Next stop: selling of any Greek (and soon US) security becomes treason and is punishable by death.


Greek trading system HDAT, which is run by the central bank, told primary dealers of Greek sovereign debt the move was a response to the scale of open short positions on such bonds, according to a copy of the HDAT document obtained by Reuters.

This week financial markets hammered Greek bonds and bank shares, driving the euro zone member's borrowing costs higher and pushing it closer to tapping a last-resort European Union-International Monetary Fund safety net.

"Due to massive debit position in HDAT transactions, the Committee of Primary Dealers Supervision and Control decided as of today and until further notice to automatically proceed to repo auctions, at the end of HDAT trading day, in order to cover all transactions with such debit positions," the statement obtained by Reuters said.

Traders said the decision meant that any uncovered short positions on Greek government bonds would have to be covered, regardless of the price, at the end of the settlement day in the repo auction.

This would make it more difficult to short Greek bonds but might end up affecting market makers more than others, according to some traders.

Year-over-year, trading volume rose 35.9 percent in February. Daily average turnover in February fell to 0.99 billion euros from 1.1 billion in January.

Greece's borrowing costs have surged as markets worried about the country's soaring deficit, its debt load and its ability to rollover debt.

Greece is rapidly becoming a case study in everything crazy that America will try to pull off once our own curtain is pulled and the magician-cum-emperor behind the curtain (Ben Bernanke of course) is finally shown to the general public in his entire naked splendor.

A brief overview of HDAT:

The Bank of Greece, has one of the most technically advanced electronic trading system for bonds - HDAT - the electronic secondary security market - and this system can easily be developed further to handle retail transactions on behalf of individual banks. The Bank of Greece's immediate goal is, in collaboration with the banks, to promote retail bond transactions. In the last five months the Bank of Greece introduced the electronic trading of repurchase agreements in HDAT and an electronic credit management system, so that market participants can control their exposure to risks. Moreover, non-resident financial institutions will soon participate in HDAT. Their treasurers from their screens in London will trade Greek bonds through HDAT. This remote access system will be further enhanced in 2000 when, as we plan, HDAT will apply to be connected to the European MTS system and hence participants of HDAT will be able to trade directly in other European markets. Transactions in HDAT were just less than $ 10 billion per month over the last twelve months and $ 14 million per month the last two months, but more importantly, HDAT prices are the official and undisputed reference prices. These are used for direct trading between financial institutions and between the latter and their clients, so that the total volume of bond trading registered by the Bank of Greece Security Settlement System in a book-entry reached Euro 45 billion per month in the last twelve months, and 65 billion per month in the last 2 months. HDAT is a fully integrated market, inter-linked with the settlement system of the Bank of Greece. Settlement amounts are processed automatically and clearing is effected without any involvement of trading counter-parties.

Without HDAT it would have been impossible for the interest rate spread between bid and offer to have narrowed to less than 25 b. points from more than 300 basis points prior to HDAT. Likewise the interest rate spread over the 10 years bund from more than 300 basis points has been reduced to some 90 basis points. The related budget saving of interest payments is estimated at least Euro 250 million per annum and probably more. The development of HDAT will continue so that it can meet at any moment the highest technical and safety international standards, and in this way Greek bonds can be at par with other paper used for monetary policy operations by the ECB. In this connection, the Bank of Greece will soon introduce a fully automated valuation system enabling the Bank to apply haircuts on the market value of securities on a daily basis (i.e. the present 20% haircut will cease); the lowering of haircuts will remove a competitive disadvantage faced by Greek banks holding securities, thus further enhance their attractiveness. Using rigorous quantitative assessments of price behaviour of government bonds the bank will utilise soon market-oriented risk control methods in its collaterilised lending to domestic banks in contrast to methods based on face values. A corporate bond market is also expected to develop as gradually the tax treatment of corporate bonds is aligned to that of government bonds. A mature corporate bond market will also help to relocate (back to Greece) part of loans now raised through other European financial centres, often loans granted by greek banks operating abroad.

In a low-yield environment investors are increasingly seeking for return enhancement, and corporate bonds offer better return than government bonds. Likewise, more and more banks prefer to manage and issue bonds on behalf of their clients rather than to provide outright loans which affect their balance sheet and, their liquidity. Moreover, fees for issuing and managing a bond combined with the fact that a bond does not carry a credit risk often provides higher profits to the banks than loans. We think that there is still big potential for the development of the greek government and corporate bond market after Eurozone entry and this , despite the narrowing of the spread over the 10 year bond yield, which will encourage some investors to move to higher yielding emerging markets. We expect that his will be considerably more than compensated by investors who prime security (particularly pension funds and insurance companies) and the 30-40 basis points higher yield of the greek 10 year bonds will attract them. Indeed, there is a sizeable untapped market. Pension funds of larger countries which now focus on their home market, will gradually diversify their investments into other Eurozone countries and in Greece in particular as the currency risk is eliminated and credit risk gradually becomes nil as the government debt/GDP ratio moves to below the 100% and towards 60% mark. Other things being equal (i.e. risk premium), investors will be more aggressive and look for higher yields and for pension funds a yield difference (premium) of 0,40% per annum over the Bund cumulated over 10, 20, 30 years will weight heavily in financial investors choice.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
truont's picture

Notice how governments, which claim to act in the public good, actually only act for their own good.

In desperation, a government will do anything to the public (who appointed the government) to survive and continue its existence.

mikla's picture

This really isn't hard to understand.  There are many theories on the structure and behavior of bureaucracies, but they all conclude:

A bureaucracy's first job is to feed itself.

After that, sometimes they go about their mission.  Quite often, however, all incentives is for them to undermine their mission (to actively work against their mission).

Governments have no incentives to serve their people, but rather, have all incentives to grow and protect themselves *from* the people they rule.

ZackAttack's picture

C'mon, this is a skirmish in the battle to shape western civilization. I'd be disappointed if there wasn't a helluva fight.

What_Me_Worry's picture

Step 2- Prohibit selling

jimcg's picture

Step 3: Mandatory buying.

Missing_Link's picture

Step 4: Mandatory buying on margin, to be funded by future generations.

Oh, wait.  Here in the US, the Federal Reserve is already doing that for us.

three chord sloth's picture

Step 5: Require all retirement accounts to be "x" percent in Greek bonds... "x" starting at 50, ending at 100.

FischerBlack's picture

Step 7 Collect Underpants

Step 8

Step 9 Profit

perchprism's picture



What the hell??!   Honey, I just saw a gnome in my underpants drawer!!



MarketTruth's picture

>>Step 3: Mandatory buying.<<


Isn't the USA going to do this to all their citizens via their 401k account. Hmm....

Marc45's picture

Off with their heads!  (Greek govt to short sellers)

rich_maverick's picture

Unfortunately, doing this in a time of panic only results in the opposite behavior.  Why would anyone put new money into an investment by which they are imposing controls on liquidity.  Today, they restrict the short sellers, next, they will restrict redemptions and force rollovers of existing debt.  It's unfortunately inevitable.  This is something that should have been done way earlier.  Now, it just looks like desperation and will get the opposite reaction.


Bruce Krasting's picture

What's worse than a short squeeze that doesn't work?


jdrose1985's picture

Obviously "they" seek to fail under the evil guise of protecting the system heh ya know whatta mean

Leo Kolivakis's picture

Damn those Greeks are so stupid! How many of them have graduated from Harvard, MIT, Yale, Princeton, LSE,  and they can't figure out how to ward off the big bad speculators? Shit, maybe Aristotle and Plato weren't Greek after all. SIGH!!!!!!!!!!!!!!!!!!!

nonclaim's picture

Yeah and when (not if) Greece falls into the IMF hands or defaults you'll say: OMG!! That was totally unexpected! Nobody saw it coming! CNBS never mentioned it!

Come on, cut the crap...

SgtShaftoe's picture

When do yall think this is going to start speeding up, if at all?  It's taking much longer than I thought for the dominos to fall.  I'm afraid that if it goes down too slow (a decade), those of us who have hedged a defense won't have jobs or a pot to piss in by the time it makes any difference.

rich_maverick's picture

Dude...  the speed at which dominoes fall is at first very, very slow.  Things take years, then months, the suddenly, everything goes to hell overnight.  Just look at the Lehman debacle, the high of the DOW happened 1 years earlier, 3 months later, the market took a kick in the pants, but recovered some until Bears was "rescued".  Then, the government started with "banning shorting of financials".  Finally, Lehman, AIG, and the market fell off a cliff...  Took 1 year to play out.  But, it was Lehman that was the tipping point.  When that happened, everything fell apart.

For the next debacle, who knows what the trigger point will be.  It could be Greece, leading to Spain going through the same crap.  It could be California.  Heck, it could be Israel attacking Iran or something like that.  Point is that we have water boiling in a pot, with no way to release the pressure slowly.  At some point, it will all blow.  Just have no clue when that will happen.  Worse, I have no clue how the endgame will play itself out.



three chord sloth's picture

That's just what Hemingway said. He had money trouble, and was asked how one goes broke. "Slowly, then all at once."

ZackAttack's picture

One man's speculator is another's bond vigilante.

BlackBeard's picture

puahahahahha no bid.

carbonmutant's picture

 One of the major problems with taking a risk on Greek Bonds is that you have no idea what these Athenian Ivy League grads are going to do next.

Augustus's picture

This seems to be a pretty important update. Well worth the read as it lays out the repos and amounts the ECB has already taken in. The ECB is still allowing them at par value with only a very small haircut. What is that 4% bond worth in the new 8% market? The countries just finished throwing money to prop up their won banks. Now the ECB will be full of the trash and they are finishing it too.

Bundesbank attacks Greek rescue as a threat to stability
Germany's Bundesbank has fired a warning shot at Chancellor Angela Merkel, attacking the joint EU-IMF rescue plan for Greece as a threat to economic stability and probably illegal.

By Ambrose Evans-Pritchard
Published: 10:44PM BST 08 Apr 2010

Buck Johnson's picture

They are making more likely that they will default and/or call the IMF for help.  You know they keep saying that EU will fund the Greeks yada yada yada, but if thats the case why hasn't the money started to flow.  It's because as I stated before the lion share of that money is coming from Germany and they and their people don't like it.  I read that article you posted Augustus and Greece bonds shot up this week to 8.3 percent from 5.2 last week and the only reason it went down from the top is because Greece made statements of cutting budget deficit by 40 percent.  You know what does that truly mean, to me it looks like Greece saw the gates of default before the week was out and decided to make any statement to stop the slide.  The problem is that anyone with an IQ over mud knows that Greece or any country won't be able to cut their budget like that to almost half without major political and social upheaval.  The got so panicked that they said anything to stop the slide.


Greece isn't getting the money, because if they where they would have had it by now or a more detailed plan of the bailout.  And there's none.  Merkel knows that her opposition and her own govt. officials smell blood in the water.  They know this is a bad idea and buy letting them go is the best option.

Augustus's picture

It is not a 40% budget cut.  It is deficit reduction of 40%.  Reduce deficit from ~12.5% to ~8% of GDP.  They will still be increasing debt, with increasing interest rates applied to rising balance.

jimcg's picture

Whichever method "they" decide, the Greek "Games" must go on.

The Rothchilds demand payment, one way, or another.


nathan1234's picture

Dont forget to ban the swaps too