How long will this charade continue? The whole world is fully aware that Greece is done, and now even the traditional long-term holders have thrown in the towel: the entire Greek curve has melted up more than our own S&P - Bloomberg now notes that even US accounts whose risk memory is non-existent, may not be willing buyers of Greek debt. What's worse Greece is out of diplomatic and political ammo - the CDS scapegoating is finished, which is quite ironic - as shown below CDS are lagging Bund spreads by an unprecedented amount. This implies, as we have claimed all along, that CDS were never the marginal driving force in the spread explosion, but that it all came from cash selling. Additionally, the paradox is that the inability and unwillingness to hedge has left cash spreads blowing in the wind - now virtually nobody is willing to trade in Greek CDS, so Greece has once again shot itself in what is left of its feet. Of course Greece can join the SEC in blaming the shorts, but that's an old tune. And to top it all off, G-Pap has repeated that the EU/IMF support deal "has been a great success and the situation is manageable." Don't tell that to shareholders of the National Bank of Greece whose stock is down 10% in just two days. And the biggest and most supreme irony, bankingnews.gr reports that Greece is now seeking emergency capital from Abu Dhabi and other Arabic sources... As if they didn't have a Dubai of their own.
Here is a chart of cash and CDS spreads. Here is Credit Trader's concise summary of the action:
CDS-Bond basis is increasingly negative again (Bonds underperforming CDS so don't blame the CDS market).
5s10s curve are inverting further in both Bonds and CDS (Bonds more inverted/stressed)
5Y GGB at new wides to Bunds (CDS still within its widest levels).
All-in-All - not pretty!
Not pretty is a victory for the bulls.