All Hail The Draghi Put: The Global Bond Market Is Now Well And Truly Broken

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

The evil of modern central banking can nowhere better be seen than in this week’s mad stampede into $4 billion of Greek bonds. The fact is, Greece is not credit-worthy at nearly any coupon yield, but most certainly not at the 4.75% sticker that was attached to the offering.

After a 20% contraction the Greek economy has been literally eviscerated—with not much left except tourism, yogurt plants and a 27% unemployment rate. It has an impossible debt-to-GDP ratio of 170 percent and, worse still, almost all of that debt is owned by EC institutions and the IMF. That is, this week’s “winners” stand in line behind the “bail-you-in-first-brigade” that will find some way to crush private investors—-English law indentures or not—when repayment of their own tower of loans comes into question.

And the claim that Greece’s fiscal affairs have turned for the better is really preposterous.  Like Italy and some of the other PIGS, the Greek government has discovered the trick of off-balance sheet financing by stiffing its vendors. The backlog of “payables” to pharmacies, hospitals, doctors, garbage haulers, road maintenance vendors and countless more, along with deep arrearages in payments to pensioners and other transfer payment beneficiaries, has been manipulated by the finance ministry and their Brussels overseers to a far-thee-well, and now totals in the tens of billions.

This has created the impression, of course, that Greece’s budget is on the mend; its actually on the road to yet another political crisis owing to the parched liquidity among vendors and the precarious finances of beneficiaries. And that’s to say nothing of the absolute fracturing of the Greek body politic, where its current lame government survives by kicking enough recalcitrants out of the Parliament, as may be needed, to clear the next Brussels demanded action with one vote to spare.  In short, Greek sovereign risk cannot be even calculated by the market because it essentially has no functioning sovereign.

But none of this matters, of course, because the howling pack of money managers who scooped up the Greek debt at an oversubscribed rate of 5X were not pricing the non-credit of the former Greek state, but the promises of Mario Draghi—-the Goldman Sachs plenipotentiary temporarily seconded to Frankfurt.

Even the New York Times figured out that this week’s ballyhooed “return to the market” was a complete farce:

Investors may be playing a dicey game, but in the case of Greece and other shaky euro zone countries, they have been assuaged by the belief that the European financial machine will kick into gear should anything go wrong. European Central Bank President Mario Draghi has pledged to do “whatever it takes” to keep the crisis from reigniting.

They even found one of the remaining sane spokesman for the EC apparatus to clear the air and verify that the offering had nothing to do with “price discovery”—-the ostensible purpose of capital markets:

“Investors don’t look to the long-term health of economies,” said Simon Tilford, the deputy director of the Center for European Reform in London. They are looking at whether they can extract gains “without losing their shirts. At the moment, they figure they can, but that doesn’t tell us much about the sustainability of the euro zone or whether governments have taken it on a path to sounder footing.”

Besides vast mis-pricing and mis-allocation of capital, central bank puts also drastically impair even the daily vocabulary and discourse in the markets—rudiments that are essential to effective and honest price discovery.  After noting what is the sheer lunacy of the “Draghi put”, and that the herd of fast money traders which chase it have driven the yield on Spanish 5-year debt below that of US Treasuries, the NYT found one money manager who wasn’t drinking the Kool-Aid.

Fadi Zaher, the head of bonds and currencies at Kleinwort Benson, said his group had stayed on the sidelines due to “lingering concerns about the country’s poor economic health and its mountain of debt”.

Still, after noting that “there is euphoria right now over the Euro area” and that the euphoria is spilling over to Greece, Mr.Zaher concluded by saying:

“We are cautiously optimistic about the story, but looking over the longer term we are very, very cautious about it.”

Well, that is the equivalent of an analyst “hold” rating, but the vocabulary speaks for itself. The crush of momentum trading and the herd kiting of central banks is so overwhelming that even a professional skeptic could only muster a “very, very cautious” utterance. In truth, the better utterance would have been a “sell, sell. sell”.

Yet the very worst evil of monetary central planning is that it enables clueless politicians to believe in their own fiscal fairy tales, and to persist in the ritual can-kicking that is the scourge of central bank intoxicated politicians everywhere. In the context of its shattered economy, the Greek budget is a house of cards. Still, its current leaders, whose tenure is precarious by the day, get their turn in the spotlight to issue utterly specious pettifoggery:

In Greece, officials declared victory. Yannis Stournaras, the finance minister, said the nation had made “the biggest fiscal adjustment ever recorded since World War II” in a bid to mend its finances. The prime minister, Antonis Samaras, said in a televised statement that the strong demand for the bonds was “a sign of trust in the Greek economy and its ability to overcome the crisis.”


What David likely did not know when he wrote this epic take-down of the farcical so-called "markets" we live in today is that:

1) Reality is already biting on these bonds (but that doesn't matter because Greece got it cash)


2) The freaking country needs another bailout...




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HedgeAccordingly's picture

just about 75% of all US QE $$ wasted with bond yields back where they were nearly 1 year ago -

edotabin's picture

OT but in the same vein as the whole birth certificate/voting thing....


ok let's assume for a second he is being sincere about not making it too hard on people to vote. Why then do we have REAL ID?

Just a quick google search yields the IOWA requirements to qualify for REAL ID:

Go through the steps..... valid passport, SS card etc. etc....

If you don't get a real ID, you eventually will not be able to go into federal buildings or fly without additional documentation etc. Won't you need at least a DL to vote?

OR perhaps they are placing a much higher priority on travel as opposed to voting? So voting doesn't mean that much?

So, you wind up needing all that paperwork anyway. What a bunch of .......


Atomizer's picture

The Global bond market is no different to the collapse of GM bond holders.

Ifigenia's picture

Goldman Sach again cooking the books? or the investors panicking away from dollar?

Yen Cross's picture

  Off topic/  I can't wait to hear Glenn Stevens (jawbone) the australian $ next week. (mark my words)

  The reason I'm making this comment is because every sovereign on plant Earth has been buying Australian bonds.

  (short end of the curve)

Ifigenia's picture

Australia, China push to establish Sydney as offshore trading center of Renminbi Australia and China have agreed to enhance offshore market development of the Renminbi (RMB) and the central banks of both countries are working together on potential future clearing and settlement arrangements in Sydney, Treasurer Joe Hockey said in a press release on Friday. Once the arrangements are finalised, it will place Sydney alongside Hong Kong, Singapore and Taiwan as an official trading hub for the yuan, the Australian Financial Review reported. “Australia is at the forefront of countries working with China to support international use of the RMB,” Hockey said, ” Australian banks and their Chinese counterparts have worked hard to promote direct trading of the two currencies.” - See more at:

Yen Cross's picture

 the Australian $ still has a date with (80) later this year.

Element's picture

I hope you're right, all this free-trade-deal trifecta crap is going to tank us to that if AUD keeps rising, but if TAPIS doesn't come down with it, at that point, that will be just as bad or even worse for the real economy. In which case the best hope for Australia would be if there was a general recession in Asia that tanked Tapis consumption ... hmm ... damned if you do .. damned if you don't.

new game's picture

yen euro and dollar will become the trifecta of faith gone bad-just amatter of time.

knukles's picture

Back in the days of Mike Milken and Drexel Burnham, it was widely said by the bond salesmen in High Yield Space that "A Large Coupon Can Overcome Any Obstacle"
Which is "true" from a salesman's standpoint; He Who Does Not Suffer the Losses.

See, selling junk bonds rests upon a Foundation of the Mae West Quantity Theory of Stuff;

If some is good
And more is better
Then Way Too Fucking Much is Just About Right.

fonzannoon's picture

Knuks you were always right. It was you all along Fredo. I was wrong. I used to say yields were going up, and maybe they are...but these greek bonds show just how ridiculous the reach for yield will become. The last few weeks in the market ars showing that we will probably go Nirp before we blow sky high. Nice call all along my man.

knukles's picture

Thanks, fonz.
There are ups and downs, some pain to accompany the bliss along the way, but I'll keep my bonds and PMs.
I've even been extending maturities in muni space during the recent back-off.  Picking up some nice yield...

And yes, I too, sincerely, whole hardheartedly believe that ultimately, in response to the Unprecedented Global debt/money expansion taking place (not only in quantity but also quality) that rates will ultimately rise so far so fast that it'll make Volcker's Saturday Night Massacre look like nursery rhymes...
But not for a while.  Quite a while...
We're up to our asses, globally in a liquidity trap.  Which is a monetary phenomenon brought upon by non-monetary forces .. and that panoply of forces ain't being fixed, but made worse.

new game's picture

rates have to go down or see blows up. along as the faith is keep(in check) it goes on and on.

but the problems are brewing mainly in the east. brics, getting sick and tired of being bullied and whip a shitty econonmics cast upon their countries with no say. they have benifitted and played ball while usa was growing in real terms(massive debt expansion), but now it is out over the edge with no way back(to sanity). brics will cut the plank and watch us fall(dollar).

starman's picture

The world is a liar!

ebworthen's picture

Imagine being able to charge your whole neigborhood $1,000/year then selling "Bonds" bringing in $1 Million and you pay out $50 per.

When the money runs out from buying a Ferrari and drinking Bollinger with the finest caviar and vacationing in the Mediterranean you tell your neighbors they now owe you $1,250 per year, and you sell $2 Million in bonds.

Draghi at this moment is probably picking out some diamonds for his Mistress.

Ah, the life of Central Bankers, they work so hard.

intric8's picture

wow. Someone has a real appetite for greeces intrinsically worthless bonds, backed by their intrinsically worthless currency.

Ifigenia's picture

Mario Draghi job in Goldman Sach

A nostalgic time for Mario

Jack Burton's picture

This was a sign of faith by some investors in the power of the ECB to print and the backstop potential of SDR printing by the IMF. The bet is being made that enough money can be printed to keep Europe stable for the next five years. Myself I don't believe it, but then so far the money printers have held it all together. Perhaps a an economic war with Russia and the major hit to Germany and potential for higher gas or no gas can wreck a sinking ship.

Ifigenia's picture

It could also be a diversified strategic from asians from dollars. Dont forget, Ukraniane crisis is a US job. Germany is against any escalation with Russia. In a word, is a desperate try to save the dollar and US influence in Europe.

intric8's picture

Greek bonds are only as good as that countries ability to tax the public. Thats why its perplexing, cause greece is in the shithole, economically. Where did all the interest come from? Seems like artificial demand, no? Investors sure have faith in the fractional reserve con game the ecb has going there.

newworldorder's picture


EU citizens are playing a fatal game without a unified tax and budget system. Draghi is a paper tiger, who has been given authority he does not have under law to guarantee the affairs of EU sovereign nations. It is still about Germany, France and the Netherlands to backstop the Draghi Central Bank. If confidence in Draghi collapses any guarantees by the EU Central bank are worthless.

Also: Let's not forget that the FED is the ultimate backstop for the EU Banking system through SWAPS and various other FED funding practices. The house of cards very weak - but as long as the music is playing the banksters will continue to dance.

Ifigenia's picture

is too dangerous to put power in a Goldman Sachs man. He will even sold his mother to a lupanar to benefit the banksters. and Bernake, the jew, just prove us that printing money to kindom come is not a solution even for a dollar backed by oil.

exartizo's picture

love those words...

"promises by the penipotentiary full of pettifoggery."

very nice work Tyler.

This is the kind of stuff that gives ZH it's well earned reputation for calling it like it is and ripping the ugly face off the disreputable impression that the Emperor is really wearing any clothes at all.

JustObserving's picture
The Global Bond Market Is Now Well And Truly Broken

What is not broken in this world today?

All markets are broken due to government intervention and manipulation.  Gold and silver are attacked everyday to preserve the value of fiat currencies.  Every economic statistic is a lie in the West and the East.  There is no privacy due to infinite spying by NSA and GCHQ.  There is no free press, just the illusion of a free press. Unemployment keeps increasing except in the official statistics.  US debt and unfunded liabilities per taxpayer are $1,260,000 and increasing at $70,000 per year. The police is being rapidly militarized. Air, water and food are increasingly poisoned.  Monarch butterfly population is down 97% since 1996.

Not many things that are not broken in the public affairs of so-called Western democracies except the illusions of some people.

And a civil war looms in the Ukraine:

Ukraine stands on the brink of civil war, as the unelected pro-Western regime that seized power this February in Kiev threatens a bloody crackdown on protesters occupying local government offices in cities across traditionally pro-Russian sections of eastern Ukraine.

Protesters are demanding a referendum to federalize Ukraine and limit the authority of the new, far-right regime in Kiev. Some protesters have also called on their areas to vote to join Russia, as the former Ukrainian region of Crimea did last month, or declared independent “people’s republics” in Donetsk and Kharkiv.

Andrei Senchenko, the deputy head of the presidential administration in Kiev, said his regime’s security forces would “shoot to kill” if protesters did not abandon buildings in Donetsk, Luhansk and Kharkiv by today.

GooseShtepping Moron's picture

The fact that we're even having this conversation is a testament to the triumph of hope over reality. The demographics of Greece are its destiny and, demographically speaking, Greece can't recover. Their brith rate is pitiful and any Greek who can find a way out is leaving the country. There simply won't be enough people left behind to pay the bills or grow the economy. In 30 years, there may still be a smudge on the map marked "Greece," but it will be nothing but a wild land of ruins (ancient and modern) and fellaheen olive pickers. How are you going to collect on those coupons then? You might as well buy bonds from Western Sahara.

David Stockman is absolutely right that this has nothing to do with price discovery in the ordinary sense. The "price" being discovered is the simply the level below which politicians will keep buying the pot, allowing traders to bluff their way through another round. This also accounts for the unnaturally low yields on Spanish bonds. The economics of the underlying countries do not matter; in fact they don't even have to be known. You could replace "Greece" with "Duchy of Grand Fenwick" and play the game just as easily. When this reality finally sets in it won't result in a crash as much as a complete planing off of the top two or three tiers of civilization. The world of 1920 awaits us.

intric8's picture

Regarding central banking and their fly by night, learn along the way modern monetary theory being imposed on the world, danny ocean probably put it best -
"You're being awfully cavelier with a lot of peoples lives. You're going to regret it."

DOGGONE's picture

Hey you, I have a good idea, let's tell the truth!
The Public Be Suckered

Element's picture



Fadi Zaher, the head of bonds and currencies at Kleinwort Benson, said his group had stayed on the sidelines due to “lingering concerns about the country’s poor economic health and its mountain of debt”.


Remember to good old days when the market could remain 'irrational' longer than you could remain 'solvent'?

Well even the 'solvency' part is apparently not a business or investment pre-requisite within these economic and financial dead-ends anymore.

naughtius maximus's picture

Yogurt! I hate yogurt! Even with strawberries!

falak pema's picture

"Pettifoggery" that distant cousin to "citizenbuggery"...well said! 

As to the word "specious" it has such a sweet ring to it, a jingle of truth with the subsequent kick of a mule that leaves no doubt as to its hidden attributes. 

SmilinJoeFizzion's picture

In my best Tony Montana accent. "the bonds Chico, they never lie"

zenon's picture

Far from wanting to promote these new Greek bonds, but, since when does a 1/2 point drop on price and a 10 bp rise in yield get reported as a 1 1/2 point price drop and a 32 bp rise in yield?

olenumbersix's picture

Why prove you are allowed to vote. We don't even have to prove we can be president. No back ground check, No I.D., No application needed. Why you don't even need any exp. Ever lead a boy scout troop on an over night hike ? If you answered yes then you are over qualified to lead the free world, and why are we only allowed to vote one time per election ? Some folks never vote, so if I am willing to take the time to go down to vote over, and over again then why not ? It just shows that I'm engaged.  That I care.