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As Greece Sells 3 Month Debt At Record 4.1% Yield, CreditSights Explains The Negative Downstream Effects Of A Greek Restructuring

Tyler Durden's picture


Even as Greek debt hits new and improved daily record highs each and every day, with the Bund spread for 10 years hitting a ridiculous 1,140, the country continues to pretend it has capital markets access. Although in theory it still does. Even with a Greek restructuring now virtually assured, although as the CreditSights note below notes this would be a political suicide event, the country still managed to sell €1.625 billion of 3 month Bills at the stunning rate of 4.10. Reuters reports: "Greece sold more than 1.6 billion of three-month debt on Tuesday, raising funds to roll over 800 million euros ($1.14 billion) of maturing government paper later in the month, with yields rising above 4 percent. It was priced to yield 4.10 percent, up 25 basis points from an auction in February and around the rate of about 4.2 percent Greece pays on its EU/IMF bailout loans." Yet even with the "attractive" yield the Bid To Cover plunged from 5.08 to 3.45, as the only bidders were banks themselves propped up by the ECB and China: according to PDMA foreign investors accounted for 36% of the issue.

As for why the ECB was last seen buying peripheral debt, primarily of Spanish and Italian origin, it is due to the now certainty that Greece will default in under 4 months as noted previously. Still this is a decision that will likely have a substantial impact on the political picture in Athens. Credit Sights explains:

The reality from Greece's perspective is that it is unclear why restructuring would be a politically astute option. More than a quarter of Greek debt is held domestically – primarily social security (€28 billion) and banks (€31 billion), but even Greek households are holding €6 billion in short-dated securities. While those are relatively small amounts, we don't believe that asking those sectors to accept losses on their holdings of government securities would be a vote winner. What's more, Greece has the liquidity it needs until some time in 2013 thanks to the EU and IMF loan facility. There is €84 billion within Greece's EU-IMF facility that has not yet been drawn.

As far as German and French leaders are concerned, it isn't clear that pushing for a restructuring will save their taxpayers money either. It is still uncertain what impact a Greek debt restructuring would have on European banks and whether a second round of recapitalizations and rescues would be needed or what that might cost. A restructuring of Greek debt could still close the market to Spain, which would then require nearly a third of a trillion euros to fund its debt maturities and the budget deficit between now and the end of 2012. And finally, Greece's budget deficit may still need to be funded by the EU following a restructuring. Even if Greece hits all of its budgetary targets, there is still forecast to be a budget deficit of €50 billion between now and the end of 2014.

Also in the news, last week the Greek government announced €50 billion worth of state asset sales. If achievable, that could reduce the Greek government's debt from a forecasted 148% of GDP (based on the government's predictions for GDP growth and the budget deficit) to 126%. The reality, in our view, is that a restructuring of Greek debt before 2013 is more likely to be a result of political mistakes than an economic assessment. The success of the anti-euro party True Finns in this weekend's Finnish elections might present such a risk. The True Finns are opposed to any bailout of Portugal and would oppose the extension of further disbursements to Greece under the EU-IMF loan facility.

In other words, if you thought Greek protesters were willing to set cops on fire just because the retirement age was raised by 2 years to the low 60s, wait until you see what happens when Greek retirees realize up to 40% of their pensions have just been "hair cut."


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Tue, 04/19/2011 - 07:30 | 1183249 ZeroPower
ZeroPower's picture

Wow.. parking some funds in Greece until summer will give you 4%, not bad. And 10yr sitting at over 14.6%. BUT - good news. 5yr CDS tighter today!

Tue, 04/19/2011 - 07:31 | 1183250 DB Cooper
DB Cooper's picture

Someone tell me how to buy Greek debt as this will surely lead them to default and we can get on with this.

Tue, 04/19/2011 - 07:35 | 1183258 AUD
AUD's picture

Bond speculators speculating on being able to flip Greek 3m to the ECB?

Tue, 04/19/2011 - 07:39 | 1183261 milanitaly
milanitaly's picture

Italian Finance minister Tremonti said today that is time to discuss the european threaty. (time to print money?)


Tue, 04/19/2011 - 07:57 | 1183285 Dick Darlington
Dick Darlington's picture

Wouldn't expect anything less from Italy than suggest something as suicidal as that. Italy has unsustainable debt load and poor growth prospects and the politicians in Europe know that they have already lost the game. So why not proceed to the next "kick the can" -act in this perverse show and start printing money outright. History shows that will solve all the problems in the world, right...

Tue, 04/19/2011 - 07:38 | 1183263 Sudden Debt
Sudden Debt's picture


Even 4% a day would be risky!


Tue, 04/19/2011 - 07:53 | 1183280 reload
reload's picture

Quite so.

And in related news: Spanish 10yr yieds look like they are going to have another go at breaking north. Are the ECB frantically buying that shite as well?


Tue, 04/19/2011 - 07:50 | 1183278 Cant see me
Cant see me's picture

What exactly would happen if they just defaulted?

What would that mean to the average Joe?

Tue, 04/19/2011 - 07:53 | 1183282 Sudden Debt
Sudden Debt's picture

1. Big pension funds will go belly up. Old people would have to eat less chicken and more grass.

2. Countries who buy each others debt (while have mountains of it themselves... go figure...) would get into even more shit and also risk to go above 120% GDP

3. All funding would need to come from inside of Greece : Huge tax raises. Industry would get out of Greece.

4. All government workers would lose their jobs.

5. No more infrastructural investments: Go dirt roads.


There are about 1000 implications and none of them is good.



Tue, 04/19/2011 - 08:23 | 1183346 topcallingtroll
topcallingtroll's picture

when the tulip mania crashed everyone netted out their trades and apparently it wasn't that bad according to the history books.

Won't this all net out to maybe a couple of really big losers and most people not noticing much?

Tue, 04/19/2011 - 08:38 | 1183386 Sudden Debt
Sudden Debt's picture

let's interview some of those traders who witnessed the tulip mania...

the "stock market" back then consisted out of about 100 people and it took about 4 weeks to carry a message from holland to spain back then.




Tue, 04/19/2011 - 09:10 | 1183460 DeadFred
DeadFred's picture

All those dirt roads and potholes... Hmmm.  Who is the biggest autoparts supplier in Greece?

Tue, 04/19/2011 - 08:04 | 1183302 the not so migh...
the not so mighty maximiza's picture

they are a old dried up, crusted up hairy gryro

Tue, 04/19/2011 - 08:26 | 1183356 topcallingtroll
topcallingtroll's picture

The ECU has lost their credibility with the sheeple now, not just the zero heads.


They quietly allowed all the big banks to hedge and reposition all the while maintaining publicly that a default was not in the cards.

If a business did this they would be guilty of securities fraud, but a government can make false pronouncements and quietly allow the connected to get prepared.

Now no one will believe them that spain is contained.  This is going to be might interesting.

Tue, 04/19/2011 - 08:32 | 1183377 taraxias
taraxias's picture

How would they hedge? Who's stupid enough to be on the other side of that bet?

Tue, 04/19/2011 - 08:39 | 1183392 topcallingtroll
topcallingtroll's picture

I guess we are going to find out when all these cross trades get netted out eventually.  There are a number of indirect hedges that might suffice to mitigate some of the damage.

Tue, 04/19/2011 - 09:24 | 1183486 RichyRoo
RichyRoo's picture


Tue, 04/19/2011 - 08:45 | 1183400 Sudden Debt
Sudden Debt's picture

The ECU is synonym for silver coin :)

I actually have many, and their value keeps going up on a daily basis.

I think you mean EURO.

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