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Greece Update: Another Day, Another Record: 10 Year Hits 484 bps
Today's 13 week Bill auction has done exactly nothing to tame Greek default spirits: case in point, the 10 Year has just surged to another all time record high of 484 bps spread to Bunds. Notably, and as we expected, just as the Gold selloff last week was
predicated on Paulson concerns, the hedge fund manager's major holding
in GGBs may well be the reason for increased volatility in Greek bonds.G-Pap now has no choice but to activate the US taxpayer bailout. We are confident this will be spun favorably by the media. We only wonder if as soon-to-be DIP lenders, Americans will now have first dibs on the best rooms at Athens hotels. We are awaiting to get confirmation from bondholders whether or not Greece will enter some sovereign "grace period" on its maturity of over €8 billion in 10 year notes due today.
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8 billion due today, I wonder how this will be spun positively?
So kewl -- when the EMU implodes, terrorists will be left holding the bag:
Mafia money launderers, terrorists and tax dodgers may be accumulating 500-euro bills because they’re easy to hide and transport, the Bank of Italy said in a report.
As much as 6 million euros ($8.1 million) fit in an overnight bag, and 10 million euros in a 45-centimeter (18-inch) safe-deposit box, the central bank said in a 15-page internal study obtained by Bloomberg News.
“The wide diffusion of the 500-euro bill is a motive of possible concern in terms of fighting both money laundering and terrorism financing,” the June 2009 report prepared by the central bank’s financial intelligence unit said.
http://www.bloomberg.com/apps/news?pid=20601109&sid=apbqDcYpHhdA&pos=12
This is a very curious thesis. Mafia money launderers, who are at what level of der Stadt, will be stuck with paper? Terrorists, who are created, staffed, trained, and underwritten by der Stadt, will be stuck with paper? Tax dodgers, some maybe read / comment here, are deemed as too stupid to avoid fiat?
Please let's see the article for what it is: Get a hard on, thinking about the "bad guys" getting theirs, but don't realize J.Q.Public is holding der sheisse.
Serious Question: Why does the spread matter? Wouldn't it be in Greece's best interest if the prices of their bonds fell, and then they could repurchase them at a discounted price in the open market instead of re-paying them at par? Essentially Greece would be shorting itself.
If only they had the money to re-purchase. Not having a printing press limits their options somewhat.
In theory, if they had the money to buy it back. But for Greece today the borrowing costs would make it a bad deal.
The spread is the premium they pay for issuing debt. The lower is better, but if the price of the bonds fall, then it means that they're going to get less money next time. Shorting themselves doesn't make sense and they don't have the cash to buy their own bonds ... or they wouldn't issue them.
Since they don't issue their own currency, the only way for them to buy the bonds would be to raise the funds through a... bond auction!
Just like the Banks could, Greece should be able to book a profit on the widening of their spreads - since they could buy back the debt for cheaper. Given the huge widening and massive amount of debt, this may mean that Greece is in fact in surplus.
It's much easier for them to default than to take the medicine from the bailouts. They have less to lose in defaulting. Greece has a history of doing just that.
Absolutely agree. In an interview with Spiegel Online, the German Finance Minister went on about how we cannot let this happen to Greece. Spiegel correctly pointed out "You are exaggerating. In past years, it's happened again and again that a country couldn't pay its debts, and yet that hasn't led to a collapse of the global financial system. Why should this be different in Greece's case?"
It certainly is different this time ... it would show that extend & pretend has reached its limits and the next in line will come to default. In the previous occurrences, there was no domino effect, but now many countries will default due to their exposure to greek debt.
A year ago I would agree that there would be a domino effect. But with all the stimulus pumped into the system globally, there is a much stronger economy than a year ago that would cushion any default. Timing is everything here. The global economic strength right now can support this much, much easier than a year ago.
But with all the stimulus pumped into the system globally
Endquote
And the stimulus derives from? Debt.
And the debt is funded by? Bond sales.
And the bond sales are purchased with what? Stimulus dollars at a negative real rate of interest.
Rinse and repeat. And we get stronger and stronger each time. Uh huh.
Exactly, there is no end to the circle until someone defaults and breaks it. If Greece does that, then the PIIS will feel like they can run away from their debt too and then you get Austria and the UK, maybe even Germany, being strongly exposed to PIIGS debt, running short on cash and forced to sell more debt to cover the loss.
Bottom line: who will lend it to them ?
Greece is now part of a bigger monetary union. Default wouldn't be a positive for potential EU investors.
They are playing hardball because they know that the US and Europe to keep this game going, will bail them out. I don't want to hear another word about how the US taxpayer is bailing out Greece -- the only free printer of money is just giving a dollop of paper to yet another participant to keep the game going.
I would not count on this bailout with such certainty. This volcano can freak havock on Europe and may be very ill timed for Greek welfare .
Just like the Banks could, Greece should be able to book a profit on the widening of their spreads - since they could buy back the debt for cheaper. Given the huge widening and massive amount of debt, this may mean that Greece is in fact in surplus.
Anyway, truly manly men would never accept aid from such sissy wuss-man organizations as the ECB and the IMF.
You must be unfamiliar with Greek love.
Greece may be in a position to default and not trigger a huge domino effect, I would say there will be impact. Anyone that thinks Spain, Portugual, Italy, Ireland or France would not start a domino effect is smoking some good stuff. The only reason Greece is even talked about is because it's small enough to actually be saved.
If I were in charge of Spain, Italy or Ireland I would be cranking up the spending. When you owe the bank $1,000 and can't pay... you have a problem... when you owe the bank $500 billion and you can't pay the bank has one hellva of a problem.
I have been saying this since Bear Sterns.
IIPS -- "Ignore In Plain Sight" -- this is how problems like the Greek debt crisis are handled these days. The gentleman's agreement among the banks and politicians is that they will simply ignore the obvious "small" problems, and if any of them are called on it, they will spew meaningless plattitudes. Damned if it hasn't worked so far!
Greek government should legalize cannabis. Aside from providing additional tax revenue it would also give them a rational excuse.