Abysmal news for Greek Bonds and Debt Swap Negotiations

Wolf Richter's picture

Once again, hope is pervading the media that an agreement might be reached between the Greek government and private sector investors on a debt swap, maybe even this weekend, though everyone is hobnobbing at the World Economic Forum in Davos where all sorts of things have already been said and leaked between drinks. EU Finance Commissioner Olli Rehn was the bearer of the good news: the 50% haircut, though now judged insufficient by practically everyone, appears to be in the can, and the only remaining thing left to fight over is everything else, including the trivial matters of coupon rate and maturity.

So we follow Rehn into hopefulness. We've been hearing forever that large vulture hedge funds, which were holding these bonds by the shipload, essentially blocked the debt swap negotiations as they were hoping to push Greece into default, which would then finally be declared a “credit event” that would trigger CDS payouts. Then more recently we read practically everywhere that almost the opposite was true, that the largest such funds actually spurned Greek bonds, and that some had gone through the unusual trouble of outright denying involvement. And now the Frankfurter Allgemeine suddenly, coup de théâtre, knows that hedge funds aren't even at the negotiating table because their participation is so inconsequential.

It appears they have figured out that waiting for a "credit event" that would trigger a CDS payout is like waiting for Godot. So then, who are these private investors who hold about €206 billion of these crappy bonds? Well, the usual banks and financial institutions, and ... German retail investors. The dumb money is moving in.

The Stuttgart bourse is Germany's leading exchange for derivative products and bonds, including euro sovereign bonds. It handles 60% of the transactions by individual German investors. And Greek sovereign bonds are suddenly trading like there is no tomorrow. Oh, wait.... There is no tomorrow? At any rate, trading volume in these bonds has more than doubled since mid-December and is now second among all European sovereign bonds. Only German Bunds trade at a higher volume.

Bonds due in March make up 80% of the trading volume. The lure: they’re “cheap.” They go for 39 cents on the euro, down from 50 cents on the euro at the end of December, after a spike. So they’re volatile, and volatility leaves room for hope. Bonds due in May are trading below 30 cents on the euro.

These investors are throwing the dice. Left to its own devices, Greece will not be able to redeem these bonds when they mature in March or May. Whatever they're worth afterwards will be significantly less than what they are worth now, if Argentina is any guide.

If there is an agreement with private sector bondholders, and if there is sufficient participation, and if the debt swap actually takes place, then these bonds may turn into a profitable investment. But those are big ifs. One thing is for sure, which leaves little room for hope: the smart money was selling them those bonds.

"The case of Greece is hopeless," Otmar Issing said. He should know. He was on the Bundesbank and the ECB. Another voice in an increasingly loud chorus. But it’s legally impossible to kick Greece out of the Eurozone. So he suggested a procedure—a procedure that is already happening. Read.... Kicking Greece out of the Eurozone.

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JuicedGamma's picture

Cool, possible 200+% profit! No wonder people are rolling the dice.

How many individual investors have bought out of the money "lottery ticket" options? I venture it's a fairly high percentage. It'll be interesting to see where the short dated bonds go over the next months.

Vegas anyone?

goodrich4bk's picture

Most here believe the Greeks are lazy, they spent too much and they are to blame for the collapse of their economy when the government defaults.

How many of you will say the same things when it is the U.S. in another decade or so?  Really, all of us voting for Ron Paul can say it wasn't "us", but he's getting about 15% of the Republican vote and, at best, 10% of indedpendents and 5% of Dems.  In other words, over 75% of the population CAN be blamed in a decade, include all of you who are too lazy to vote or too afraid of Obama to vote for Paul.  

Sure, some of you fool yourselves by believing our PM savings will somehow get us through the storm.  How will those of us with PM savings feel when a Chinese-led "Troika" refuses to lend our government another nickle unless it passes a VAT---which it will readily do to keep Washington well fed?  Or when our taxes are added to our utility bills and our power is cut off if we don't pay? (that is exactly what they're doing in Greece by the way)  

When that happens it may make us all feel so warm and fuzzy to say "we told you so", but I doubt there will be a single ZHer who will want to hear our Chinese masters say "we" were lazy and it was all "our" fault.    

Bottom line, there's at least 15% of the Greek population, maybe more, that saw this coming but were powerless to do anything about it. They're not lazy, they're not to blame, and they're mad as hell.

TrulyStupid's picture

Decade?  more like 2014 at the latest

fiddy pence haff pound's picture


that's what I've beeen trying to tell all the guys who say "Greeks are lazy".


This website gives you enough information to know that the noose is tightening

on all our necks, and yet most of the guys who feel like writing here usually

check with their ass before spouting the most racist, schoolyard bullshit.


I don't think it's socialist for people in different countries to use the internet (while we have it)

in order to compare facts and prepare to foresee problems rather than us workers

always being the victims.

There's no law that'll save anyone now that governments are covering up all the financial

crimes. Eventually, there was gonna be an MF Global where real people saw their money


So, the mainly American ZH audience and Richter's German audience should be asking

the Greek readers what's going on, instead of pontificating. (That's what you get with a German pope.)

Maybe we'll support one another before it's too late.

Occupy your websites.


brettd's picture

And do what with them?

Silversinner's picture

Lot of my friends have been playing the stockmarket,

bought overvalued houses and on top of this took

out big loans for toys.They are all broke now.

All the while I have been stacking the PM,while living

within my means.My financial wealth has been growing

litle by little but steadely to the point where I am almost

financially independent.

I am still saving and leave the gambling to others.

good luck you morrons,still be my friends

wether you win or loose. ;)




Dirtt's picture

Just keep your PMs outside the USA.

Tuffmug's picture

ISDA at moment of truth. They have been playing coy till negotiations are final but note that Greek CDS have not gone to zero so there are big money players out there who will demand payment. Everyone knows Greek deal is a forced coertion of bondholders and somebody with a CDS is going to hold out. If ISDA does not acknowledge this by triggering CDS payout then they are out of business as they expose their products as a sham and face massive lawsuits from every CDS holder. Politicians can talk all they want about deal not being a CDS trigger but ISDA has billions of reasons to trigger CDS when this "DEAL" aka cramdown is finalized and CDS holders start screaming and litigating for payment.

Buck Johnson's picture

I've been saying this for a week, a credit event must be said by the ISDA.  If it doesn't happen then not only will they be sued byt he CDS holders but it will make them as you said a sham for the whole system.  Also what it does if they don't say these events are a credit event it will make it impossible for them to call a credit event for any bonds that are in the same condition or less.  Not to mention the lawsuits that might come from past clients who might say ISDA back in 2004 called a credit event on certain bonds that where in better conditiont than the ones they say shouldn't have a credit contidioned called.

brettd's picture

If the government doesn't believe in the rule of law, 

the lawsuits are a waste of paper and ink.

Tuffmug's picture

Governments can get away with anything but ISDA doesn't have sovereign immunity and infinite resources to protect them from lawsuits. Also, if ISDA caves in to the sovereigns on Greece then the market for all CDS will collapse, taking ISDA with it.

Offtheradar's picture

Jesus, just default already.  We've got more important things to worry about.  

Element's picture

They have, just no one wants to recognise it yet.

They defaulted the moment GGBs went over 6.5%.

ebworthen's picture

I think he defaulted a long time ago.

dizzyfingers's picture
Fitch Goes On Rampage: Cuts Spain, Italy, Belgium, Cyprus, And Slovenia |January 27, 2012

Fitch just cut the long-term issuer ratings of 5 EU countries:

Belgium: AA+ to AA

Spain: AA- to A

Italy: A+ to A-

Cyprus: BBB to BBB-

Slovenia: AA- to A

It affirmed Ireland's BBB+ rating with a negative outlook.



Money never sleeps's picture

2012 europe - zero hedge

everybody holding anything that even smells european will be fucked this year. they will realize it only after the intercourse.

Tompooz's picture

Dutch municipal  bonds (BNG) are pretty solid, especially the ones denominated in AUD or NKR.

kaiserhoff's picture

I'm an arb, but you can't arb this shit.  There are simply too many moving parts, with no logic, intelligence, or rule of law behind any of them.

If anyone, anywhere, makes money on this, I'm going to study it, because I want to know how it's possible to live forever off someone else's credit cards.


non_anon's picture

hope is for dopes

fiddy pence haff pound's picture

That's great!

Bunch of guys who've never left their basement bunkers are fit to tell the world

that a whole country, like Greece, is lazy.

So the rest of the Union is working for Greeks to sit around, right?

What does that make those workers? Intelligent?

Why don't they complain? are they perhaps serfs without a voice?


If you think the Greek people actually have any way of affecting their corrupt

government, then you're a true democrat, and a fool.

Greece has always been owned and now it's owned by the countries that force

it to go into debt to buy their products, so that those 'working' countries can have

the illusion of full employment. So, now , it's the turn of those workers to pay for the

Greeks' debts, because their work creates Greek debt.


If you live long enough, you'll learn that the Greeks know exactly how to see off these

coloniser, like many before it. They'll lie, cheat and steal. And, the racists on ZH will

become/are serfs who will pay the bill.

adios and happy reading, fools.


Freddie's picture

Greece is the Detroit or Haiti of Europe.   It will never be "fixed."

fiddy pence haff pound's picture

by the way, that's an awesome allegory, Freddie.



Haiti has been run from Washington for decades. Haiti has been forced to buy

American products and they're forced to keep wages low so that American

companies can make cheaper jeans. Even now that they're starving, the have

to eat American GM food. Their internal food markets have been ruined.

Clinton, who goes there as the messiah, knows exactly what's going on.


There was once another nearby island that used to be run like a whorehouse: Cuba,

but they revolted.


Greece has always been handled by colonisers, but now it's being pushed into

the third world, like Haiti has been. Your country may be next.

So, is anybody gonna stand up for Greece, or are you gonna wait, in your bunkers,

until they come for you?

happy reading, Mr Bunker.


fiddy pence haff pound's picture

It's a banking crisis, firstly.


All countries have always run debts, in order to bribe the voters into voting for them.

that's a separate issue.


You need to realise that Greece, if you take away all the financial shenanigans,

and the corrupt politicians

is a country that can take care of itself.

The fact that it's being pantsed, and put on a starvation diet should not encourage

your racism, but your concern for the time when


learn from the Greek people and prepare yourselves, because the bankers are coming

for you all. Even you 'hard-working', 'democratic' nations.

PARABLE: They came for the Greeks, and I wasn't Greek, and I hate them anyways,

so I did nothing, and so on.




MiniCooper's picture

Surely these German reatil investors are being sold them by salesmen who are telling them that the IIF agreement IS for a 50% haircut guaranteed so if they buy them now they make 11 cents return on an outlay of 39 cents in a matter 2 months. On the face of it that is a very nice annualised return.

If the reatail investor has been told this return is guaranteed because the IIF has already agreed it then I can see why a retail investor would be buy last week.

Question is though is the IIF 50% haircut really guaranteed?

DeadFred's picture

I have to admit that 400% interest is inviting. You win you get a big payout and some bragging rights about how 'smart' you were, you lose and the world ends so who cares? I'll wait for 5,000% interest before I hop in. (partial sarcasm)

Whoa Dammit's picture

Better odds and more fun to be had can be found at the horse track.

boiltherich's picture

You could have said Powerball and the statement would still be true.

Joseph Jones's picture

First, I respectfully request not to be banned simply because I listened to NPR.

While working in the garage 3-4 weeks ago, I heard some gentleman, IIRC he was a European university PhD, some branch of economics.  Someone, possibly from Greece, hired him to improve tax revenue collections in Greece. 

He first made a data base of all the Greecian tax collection offices and outlined methods by which they should and could increase their efficiency in collecting taxes.  Nada.  He ratchets it up and makes a data base of every single bureaucrat/tax collection employee and the taxes they collect.  He specified particular directions to every employee in the supervisory chain to increase tax collections.  Nada.  Except he did receive communciation why he was causing so much trouble.

He resigned and went back to the university, presuming no one in Greece has any intention to pay or collect any taxes.

If you have a do-nothing drug addict teenage child laying in bed during most daylight hours, and you deliver him hot meals (he barely eats though), and give him money to buy drugs, and you don't care if he goes to school or a job, and they continue with their behavior till they die of overdose...are you justified in asking why?

The bankers will apparently continue backing up their dump trucks with cash and giving it to apparently profligate, criminally lazy Greeks, forever.  They banksters know we are brainwashed into believing they are TBTF, which means that eventually you and I will back them up and pay the interest they believe is rightfully theirs.

Boy, this credit-driven world is a doozy, ain't it?    

Absinthe Minded's picture

I listened to the same interview, you are forgiven. I listen to NPR because at least you get the BBC view. It may be skewed but not as bad as our news. I believe he was politely asked to leave, or else. They have no interest in doing what is right. It is like the corruption scandal going on at the Vatican where a Monsignor Vigano was reassigned from his position as keeper of the grounds. He was more or less facilities management and in control of doling out the contracts. When he took over in 2009 he found all kinds of corruption and put the budget back into the black saving over 2 million Euros in his first year. But the Vatican didn't want him to award contracts competitively, they wanted to dole out cash to their buddies who had businesses on the backs of all you poor Catholics out there who tithe so happily every week. Now I know where the Mafia learned their tactics.

donsluck's picture

May I suggest your alegory is mis-placed? Whatever the "lazy" attitude of the Greek people, it was their authorities who got into bed with Goldman Sachs to produce the dirivative gimmickery that trashed their economy. It's like blaming the African people for slavery, or the American populace for the financial collapse. The powerful exploit the masses, not the other way around.

Reese Bobby's picture

African tribal leaders did help cause slavery by rounding up and handing over masses of people.  The American populace did help cause the financial crisis by spending and borrowing like full-retards.  The Greek people do not want to work hard and get off the government teat.  And yes, the power elite have always taken advantage of human weakness.


It is easy to cry victim.  It takes effort to fight back.  In America it would be swell if people were interested in getting educated instead of watching reality TV on the iPad they can't afford.  They might even realize the Global Bank Cartel controlled, one-party political system has them far down the road to serfdom.

Terra-Firma's picture

Sell a few small Greek islands and they would be debt free. Even better, issue Greek bonds backed by those ISLANDS. A default triggers legal tranfer of the said islands. This is what should happen when the full faith backing of government can no longer be accepted. Hell, think Alaska. A great example.

DeadFred's picture

Would you lend them 100K if it was backed by title to beach front property on the Aegean? I would if I had such change lying around. So would any bank. On the other hand if you look at the 'lazy' Greeks who refuse to pay taxes to support their kleptocratic government you have to wonder if they're on to something.

Reese Bobby's picture

I agree.  Except Greece should strive to keep tourism assets, buy a crap load of gold with half of the proceeds, and then quit the Euro.  Tourism would skyrocket and the people could keep partying all night and laying around all day.  Win-Win.

ThisIsBob's picture

Iran could be a buyer - they have stuff that the Greeks need.

donsluck's picture

To punish the citizens for the corruption of the ruling classes is not just. The powerful who allowed the investment banks to rape the countries economies should be jailed and stripped of their assets, not allowed to go free while citizens loose their property to a soft invasion.

Terra-Firma's picture

The Greek PTB only facilated the people to live beyond their means. That is, they sold them the rope to hang themselves with. It is case of people wanting to live beyond their means being facilated by the inherint build in contradictions of one person one vote and the power relationships of financial and political power. 

juergenwahl's picture

In the dark days of 1933, Dr. Max Winkler listed sundry varieties of bond default in his "Foreign Bonds: An Autopsy." These varieties included A) reduction, delay, or suspension in the payment of: the interest rate; and/or principal or sinking fund; B) payment of interest and principal in non-interest bearing securities; C) forced conversion of loans; and D) repudiation. Many of these negative factors may be encountered in the present situation, which is dire. It does not appear that Greece will be able to redeem these securities by means of its own resources. Serious dislocations within this hapless, wastrel country facing financial ruin and social upheaval seem likely. Should the EU (read Germany) not fully support funding of requirements, then the Greek bond values will plunge much further towards their intrinsic value, which could be zero. Unfortunately, the better funded states of the EU may be able to provide only limited support in the Greek bailout because of larger, looming problems in the Italian, Spanish, and other Euroland financial difficulties. I feel that buying Greek bonds, in the current environment, is tantamount to accepting risk at the edge of the Abyss. This is a situation where the return OF principal is more important than the return ON principal. That said, thank goodness for fools and their money who  provide a living for the rest of us.

falak pema's picture

as long as its abysmal its not abyssal...whew, that was a close one!

Mr. Lucky's picture

More ponzi cannon fodder please.

847328_3527's picture

There is a loser and winner for every transaction. Who will take these huge losses?

mirac's picture

Don't forget that if you consider derivatives, that in some volatile situations, counter parties cannot pay and "both" sides end up losing...

Boxed Merlot's picture

There is a loser and winner for every transaction. Who will take these huge losses?...

This is a situation where the return OF principal is more important than the return ON principal...

It is not true that a winner and loser exist after every transaction. The nature of a transaction is such that all benefit. And no, I'm not Polly Anna. It's only when an evil element, i.e. deceit, theft, etc. are introduced into the equation, the possibility one party will experience loss, at least temporarily occurs.

Voluntary adherence to a single and equally applicable rule of law quickly rights Justice's balances. When multiple sets of scales are utilized, Justice may take a more circuitous route, but the scales will eventually still be righted.


And while "hope" may have been misplaced and commandeered by political expediency, "Faith" is the assurance of things hoped for, the evidence of things not seen.


Keep the faith.



End the fed.

pauhana's picture

The European Commission has just announced an agreement whereby English will be the official language of the European Union rather than German, which was the other possibility.   As part of the negotiations, the British Government conceded that English spelling had some room for improvement and has accepted a 5- year phase-in plan that would become known as "Euro-English".

In the first year, "S" will replace the soft "c". Sertainly, this will make the sivil servants jump with joy. The hard "c" will be dropped in favour of "k". This should klear up konfusion, and keyboards kan have one less letter.  There will be growing publik enthusiasm in the sekond year when the troublesome "ph" will be replaced with "f".. This will make words like fotograf 20% shorter.

In the 3rd year, publik akseptanse of the new spelling kan be expekted to reach the stage where more komplikated changes are possible.   Governments will enkourage the removal of double letters which have always ben a deterent to akurate speling. Also, al wil agre that the horibl mes of the silent "e" in the languag is disgrasful and it should go away.

By the 4th yer people wil be reseptiv to steps such as replasing "th" with "z" and "w" with "v".

During ze fifz yer, ze unesesary "O" kan be dropd from vords kontaining "ou" and after ziz fifz yer, ve vil hav a reil sensi bl riten styl.   Zer vil be no mor trubl or difikultis and evrivun vil find it ezi TU understand ech oza. Ze drem of a united urop vil finali kum tru.   Und efter ze fifz yer, ve vil al be speking German like zey vunted in ze forst plas.
If zis mad you smil, pleas pas on to oza pepl.