This morning the news wires are filled with the now usual contradictory, and full of lies propaganda about a Greece imminent [restructuring|golden age]. Since very likely all are wrong, we will focus on what appear to be the most credible ones: we will start with the Dow Jones story which has been official refuted by Greece, thus giving its extra validity. As Reuters reports: "News agency Dow Jones, citing a senior Greek government official, reported that Athens expects to receive a new aid package totalling nearly 60 billion euros . Greece denied it was discussing a new package..."It's certainly positive for peripheral sentiment and is assisting in the unwinding of some yesterday's safe-haven flows into Bunds," said Rabobank rate strategist Richard McGuire. Senior euro zone policymakers acknowledged on Monday that Athens will need a second bailout package soon to avert a disorderly overhaul of its debt obligations but rating agencies said more drastic measures may be necessary." Of course, this news comes out strategically and just in time for Greece to auction off a fresh 26-week T-Bill for €1.625 BN at a new record yield of 4.88% (compared to 4.80%) before an an even lower bid to cover of 3.58 vs. 3.81 previously. One can only imagine what a flop the auction would have been without the latest rumor (and even China appears to have given up on Greece: "Foreign take up in Greek 6-month T-Bill sale 34.2% vs. Prev. 41%, according to debt agency chief.") Bottom line as some trader summarized it: "It's very difficult to trade as there are so many conflicting headlines about a restructuring being the only way forward or not. Something will have to give." Exactly - here is a hint: a restructuring, in the city square, with a Molotov Cocktail... and damn soon.
"There is an evident risk... that we have a second wave of dominoes with any Greek restructuring prompting market speculation Ireland and Portugal will follow suit."
Five-year Greek credit default swap prices indicate a 71 percent probability of default based on a 44.7 percent recovery rate, according to Reuters calculations from Markit data, while Irish prices show a 46 percent probability of default based on a 44.2 percent recovery rate.
Other short-dated peripheral bond yields fell with 2-year Irish bonds yields down around 15 bps to 12.79 percent after rising almost 1 percentage point on Monday. The Spanish 10-year spread over Bunds eased to 218 bps.
"222 basis points is the level to watch there," said the trader.
"We got to 224 bps yesterday before coming back but if spreads push out above 225 bps it could be the beginning of further widening, just technically," the trader said.
Elsewhere, Germany, now on the verge of saying Sheisse to this whole european experiment crap, is keeping the heat on:
There are signs that conditions for the payment of the next tranche of Greek aid in late May may not be met, a senior conservative German lawmaker said on Tuesday.
The lawmaker said it was not clear whether this was due to Greek actions or unrealistic assumptions.
Gerda Hasselfeldt, who chairs the group of Chancellor Angela Merkel's Bavaria's sister party the Christian Social Union (CSU) in parliament, added no payment could be made unless Greece met the criteria.
And the cherry on top, is ECB's Bini Smaghi who once again implores Greece to pursue the E-bay alternative:
Greece is not in a position where it is unable to pay its debts and would be able to raise money to meet its commitments by selling assets, European Central Bank Executive Board member Lorenzo Bini Smaghi said on Tuesday.
"Some people say Greece is insolvent. Greece is a rich country, they just have to sell their assets to repay their debt. Why don't they sell their assets? Because it's politically difficult," he told a conference.
Expect more open lies, especially if Jean Claude Junker (...and with a name like that) opens his mouth to prevent a market "destabilization." The truth is that nobody knows anything and Europe is now scrambling to make it up as it goes along. (and for some actual facts, Greek March industrial production plunged -8.0% compared to -4.8% a year earlier).