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Abysmal news for Greek Bonds and Debt Swap Negotiations

testosteronepit'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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Sat, 01/28/2012 - 17:46 | 2106007 Mary Wilbur
Mary Wilbur's picture

This sucks. The EU in all its bureaucratic arrogance can go to hell and rot.

Sat, 01/28/2012 - 12:38 | 2105438 disabledvet
disabledvet's picture

I thought French was the official language? "L etat c'est moi" comes to mind.

Sat, 01/28/2012 - 18:32 | 2106056 Amish Hacker
Amish Hacker's picture

et "L'enfer est les autres."

Sat, 01/28/2012 - 08:56 | 2105302 JuicedGamma
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?

Sat, 01/28/2012 - 07:30 | 2105253 The Reich
The Reich's picture

If they are throwing the dice, why'd you call 'em dumb?

Sat, 01/28/2012 - 13:26 | 2105528 Reese Bobby
Reese Bobby's picture

The irony of your comment is a thing of great beauty.

Sat, 01/28/2012 - 06:39 | 2105216 asteroids
asteroids's picture

How STUPID can people be. Greece is mathematically insolvent. They WILL default. The only question is WHO will take the haircut and HOW much. If YOU don't know the answer then you shouldn't be playing.

Sat, 01/28/2012 - 10:40 | 2105380 falak pema
falak pema's picture

Not if it gets a 100% write off all round.

Sat, 01/28/2012 - 05:52 | 2105197 The Alarmist
The Alarmist's picture

One of my German colleagues was looking at Greek bonds and told me was planning to buy some as a flyer on getting a 900% return. I told him that 900% is merely the pricing in of inevitable default. His reply was along the lines of, "They will not default, Frau Merkel cannot allow it because the Eurozone is too important to the economy. We must help at any cost."

Now, if you are a sheep you get used to being sheared every year. It is not a pleasant process, but you might take some comfort from the fact that you are supplying wool that is so beneficial to so many. At some point, however, it goes beyond a fleecing, and you become dinner for the parasites you have been keeping warm for too many years.

Sun, 01/29/2012 - 01:46 | 2106807 Freddie
Freddie's picture

The public is brainwashed by the newsmedia, Hollywood and TV.  Only morons watch TV.

Sat, 01/28/2012 - 04:55 | 2105176 swani
swani's picture

A Momo is a Momo and one can expect the same behaviour from these types every time. 

Sat, 01/28/2012 - 04:45 | 2105167 Zero Govt
Zero Govt's picture

"And Greek sovereign bonds are suddenly trading like there is no tomorrow. Oh, wait.... There is no tomorrow?"

You're supposed to trade amidst high fear, buy when there's blood on the streets ...fresh blood... not walking-dead Greek zombies

Let's hear it for the Germans continuing to throw good money after bad at socialist losers ..where would Europe be without Germans continued stupidity to piss way what they've earned on Greeks who haven't done a days work since they joined the EU 

Spending other peoples money: German and Greek politicians are good at that

Sat, 01/28/2012 - 04:11 | 2105130 e2thex
e2thex's picture

It depends on a lot of "ifs." Well...

If frogs had wings they could fly.

Sat, 01/28/2012 - 03:54 | 2105115 nah
nah's picture

did sopa make apple real money

Sat, 01/28/2012 - 07:19 | 2105237 Mentaliusanything
Mentaliusanything's picture

The Hedge Funds are now so desperate to dump you get NOT 6 but 24 steak knifes & they throw in a free Hammer bag filled with fine German hammers. Just Buy (all credit cards accepted) Cash gets a 10% discount if not Euros

Wots not to like ;0 

Did I mention the 30 day money back offer and the phones are manned 24 hrs. Don't delay This is a limited offer to the first 10000 marks ...., I mean callers who have real cash

Sat, 01/28/2012 - 15:05 | 2105756 Doña K
Doña K's picture

Some of these hedge funds and individuals are so broke that they are doubling and quadrupling down just like MF Global. You know the likely result.

Sat, 01/28/2012 - 07:52 | 2105273 The Alarmist
The Alarmist's picture

If you call now, we'll throw in a Bass-O-Matic!

Sat, 01/28/2012 - 03:13 | 2105082 Manthong
Manthong's picture

If you don't know who the mark is in a game, then you are the mark.

Sat, 01/28/2012 - 16:50 | 2105922 SamAdams1234
Sat, 01/28/2012 - 16:50 | 2105921 SamAdams1234
Sat, 01/28/2012 - 01:15 | 2104960 luna_man
luna_man's picture

 

 

It seems, there is just no end, to the CRIMINALS!

Everywhere you look, high and low...The ones on high, usually take an oath!

 

gotta round them up...Right?

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