Greek Bonds Tumble To 2-Month Lows As Troika Gives Up And Goldman Downgrades Periphery

Tyler Durden's picture


Greek 10Y yields, up 6 days in a row, have surged in the last few days to 2-month highs (bond price lows). The significant shift in sentiment appears related to two main factors. First, The Independent reports that Europe is considering pulling Troika (its economic oversight committee) - which has been likened to German Nazi occupation - out of Greece, forcing local politicians to come up with their own reforms by the start of 2015 (which clearly the market is not believing). Perhaps even more concerning is Goldman Sachs shift to neutral on European peripheral bonds, warning that "at current spread levels we think there is not enough of a buffer for investors to take credit risk in intermediate and long-dated peripheral sovereign bonds." Time for some more 'whatever it takes' we think.


Greek Bonds are tumbling...


As The Independent reports,

Brussels is considering pulling the troika out of Greece to allow Athens to pursue its own plan to improve the economy, European officials have told Reuters.


The move seems to be partly a reaction to political pressure from Greek anti-troika political parties set to do well in polls.


The discussion, still in its early stages, will gather pace as Greece and its euro zone backers chart a new course for the country with its second European bailout programme due to end later this year.


Dismantling the troika, which has been likened by some in Greece to the German Nazi occupation, would probably be central to the new plan for Athens, news agency Reuters added without saying where it learnt of the plan.




Switching to a 'reform-for-debt-relief' scheme with lighter supervision could sooth public frustration and help bolster the coalition government at the expense of far-left political party Syriza, which has promised to tear up Greece's international bailout agreement and is leading in the polls.




"There must be Greek ownership of reform. The Greeks have until October to come up with a programme, which would be decided by December for the start of 2015."

As a fall back, Greece could be given a precautionary credit line - like Portugal..., however...

"It was a mistake not to give Portugal a precautionary credit line," the official said, referring to Lisbon's conclusion of its bailout without such back-up. "You couldn't make the same mistake with Greece."

So more free money in case they screw up.

*  *  *
Troika or no Troika, it seem beggars remain choosers in Europe - despite the hardships of the people.

*  *  *

But investors may be less patient... (via Goldman Sachs)

At current spread levels we think there is not enough of a buffer for investors to take credit risk in intermediate and long-dated peripheral sovereign bonds and to position for further spread tightening. Given our strategic view on core bonds, we expect EMU peripheral yields to increase in coming months and the curves to steepen alongside the Bund curve.


Furthermore, the market should begin to discriminate more across peripheral issuers and country-specific factors are likely to play an increasing role in investment decisions, while, so far, the backstop provided by the central bank was all that mattered. Given the macro implications of higher yields for growth and debt sustainability, an increase in core rates is likely to have a stronger effect in `weaker countries`.


In this context, we are more concerned about Italy where, over the past few months, economic activity data has continued to surprise on the downside and institutional and structural reforms have not yet been delivered. In Q1, GDP growth was negative and the signal from high-frequency indicators for Q2 continues to be weak. The Italian government is struggling to pass changes to the electoral law and the Senate, and to implement liberalization reforms that can spur growth and attract foreign investors. The fiscal outlook is deteriorating, spending cuts and privatization plans are stalling. Until the country delivers on some of these dimensions and growth comes back, an increase in core yields is likely to lead investors to demand more compensation for holding BTPs as higher interest rates will carry a greater economic and credit risk.





Finally on Portugal, we do not expect that 10-year spread to Bunds to compress further as we previously wrote. There is now more clarity on the Banco Espirito Santo Group to guide our strategic views. The bail-in procedure announced on August 3 fits into the new template of achieving a separation between banks and sovereign`s liabilities and this is a positive for the outlook of Portuguese bonds. That said, the fact that the cash buffer available from the EU/IMF program to recapitalize banks is shrinking and evidence that, even after the Troika has been in the country for three years, there was a non-trivial governance problem in the second largest bank of the country that might leave some legacy in terms of institutional transparency and credibility.

*   *   *

So, the Greeks are on their own to manage their economy (that worked out well before) and investors are losing faith in Draghi's ability to hold rates down forever... at the same time as European growth expectations are collapsing...

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Tue, 08/05/2014 - 09:05 | 5048217 IronShield
IronShield's picture

If ya had stuck to ship building and gyros, along with those tasty little desserts, everything would've been fine.

Tue, 08/05/2014 - 09:07 | 5048236 kliguy38
kliguy38's picture

How many gyros can Merkel stuff up her ass because that is gonna leave a mark

Tue, 08/05/2014 - 09:09 | 5048240 IronShield
IronShield's picture

Ouch; good point.  But I'm sure she'll manage just fine.  ;-)

Tue, 08/05/2014 - 09:09 | 5048247 MillionDollarBonus_
MillionDollarBonus_'s picture

Awesome! Another SALE!! whoe are these sellers who don't understnad that the ECB cannot and will not allow a default? Who the hell woulsn#t take a guarenteed 6% yield for 10 years? Prepheral debt is the gift that just keeps on giving. 

Tue, 08/05/2014 - 09:11 | 5048259 knukles
knukles's picture

Goldman downgraded the edges of Greece?
Another research report for the muppets.

Sell the crusty edges, buy the soft, warm center.
Sound like a girl we all knew at the fraternity house back in the 70's

Tue, 08/05/2014 - 09:16 | 5048282 max2205
max2205's picture


Is this the rinse or the repeat?

Tue, 08/05/2014 - 09:52 | 5048459 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

GS: "In this context, we are more concerned about Italy where, over the past few months, economic activity data has continued to surprise on the downside and institutional and structural reforms have not yet been delivered."

Surprise on the downside ...., When these fuckers wake up every morning it's all brand new, like alzheimers.

Tue, 08/05/2014 - 09:12 | 5048263 LawsofPhysics
LawsofPhysics's picture

Well, ignoring the haircuts of course, yes.

Tue, 08/05/2014 - 09:17 | 5048286 max2205
max2205's picture

Corzine must be dialing for capital right now

Tue, 08/05/2014 - 09:37 | 5048376 BrosephStiglitz
BrosephStiglitz's picture

"Haircut" sounds like such a regular and every day experience too.  You go to the barber and they trim you, snip you, give you a shave etc.

I guess "taking a govt. sanctioned d*ck in the ass" just didn't go down that well with the investors.

Tue, 08/05/2014 - 09:41 | 5048394 BrosephStiglitz
BrosephStiglitz's picture

Please write "MillionDollarBonus' Life Guide for the Savvy Investor".  Would be fun read.

It would probably sit in a stack of comedy books next to my toilet.

Tue, 08/05/2014 - 10:54 | 5048791 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

It would probably sit in a stack of comedy books next to my toilet.

You could always ship it to Venezuela as toilet paper!

Tue, 08/05/2014 - 09:06 | 5048220 PlusTic
PlusTic's picture

Good reason to sell Bunds, Gilts & Treasuries on this and the rest of the bad macro data...what a faukkin joke!

Tue, 08/05/2014 - 09:06 | 5048223 barre-de-rire
barre-de-rire's picture

still dont get tyler's obsession for graphs when whatever the trajectories of the cuves, everything is bailed in/out & the ponzy keep goin on a void socle...

Tue, 08/05/2014 - 09:06 | 5048226 fonzannoon
fonzannoon's picture

 There is now more clarity on the Banco Espirito Santo Group to guide our strategic views. The bail-in procedure announced on August 3 fits into the new template....



That was a bail in?

Tue, 08/05/2014 - 09:08 | 5048239 LawsofPhysics
LawsofPhysics's picture

Still waiting for all these dominos to fall.  Did someone steal a domino or two?

I want my money back!  No seriously...

Tue, 08/05/2014 - 09:11 | 5048242 NoDebt
NoDebt's picture

New MSM narrative- means that equity and sub bond holders got wiped out.  Doesn't mean what it means around ZH (depositors losing their money).  They hope you like the new meaning they've attached to it, because that's what it's going to mean from now on.

You know what they'll call it when depositors lose their money?  The same thing.  So it sounds like "oh, just another bail-in like the rest."

Tue, 08/05/2014 - 09:06 | 5048233 LawsofPhysics
LawsofPhysics's picture

Unpossible!  Greece was "fixed" a long time ago.

Tue, 08/05/2014 - 09:09 | 5048246 AlaricBalth
AlaricBalth's picture

That is what the news people said.

Yannis Stournaras: As Greece's finance minister, I am optimistic about the future. In 2014 Greece will return to positive rates of growth after six years of deep recession

Tue, 08/05/2014 - 09:08 | 5048244 JOHNICON
JOHNICON's picture

Funny how, just a few months before the Fed ceases it's bond-buying, things like this start to happen.  Coordinate much?

Tue, 08/05/2014 - 09:09 | 5048250 Bill of Rights
Bill of Rights's picture

Silver getting raped just hit the $19 handle

Tue, 08/05/2014 - 09:12 | 5048262 Sudden Debt
Sudden Debt's picture

that is... so... fucked up...

it just broke resistance and has room to drop to 15$ now...

if that ever happens...


Tue, 08/05/2014 - 09:22 | 5048305 damicol
damicol's picture

Evry cloud has a silver lining and mine just got bigger

Tue, 08/05/2014 - 09:22 | 5048306 LawsofPhysics
LawsofPhysics's picture

I always love a sale.

Tue, 08/05/2014 - 09:14 | 5048273 agent default
agent default's picture

So  Greece is not fixed,  the dollar is losing ground, Europe is about to get bitch slapped by Russia hard and the Middle East is still on fire.  Obviously everything is OK so there is no need for that Ancient Relic(TM) hence the sell off at COMEX open.

For the really thick: /sarc

Tue, 08/05/2014 - 09:18 | 5048281 Dr. Engali
Dr. Engali's picture

Good Greece made it back into the 'everything that's fucked up in the world' news cycle again. We haven't heard about them in a while. If the squid is downgrading that can mean only one thing....... their trading desk is buying.

Tue, 08/05/2014 - 09:20 | 5048298 q99x2
q99x2's picture

I wonder if Greece is going to default. I can't wait to find out.

Tue, 08/05/2014 - 09:28 | 5048320 Notsobadwlad
Notsobadwlad's picture

So this is how wars are prosecuted in the world these days ...

Countries are attacked through the banking systems, are conquered and made subservient through debt and dependence ... the clincher being the complicit bankers within a country's own system. The new Benedict Arnolds, spies and traitors, bankers selling out their countries for greed, comforts and a place in the new empire.

While, I am uncertain about the long term benefits of a global society versus a distributed society, I am not ambivalent about the ends justifying the means.

Evil means yield evil outcomes.

Tue, 08/05/2014 - 09:34 | 5048364 barre-de-rire
barre-de-rire's picture

if last 50 bank default worldwide were replaced with physical bomb drops, i think  earth would look more like the moon.

Tue, 08/05/2014 - 09:37 | 5048358 pashley1411
pashley1411's picture

Just like getting the kids out of the house and out on their own....

If the Germans stop paying to keep the kids quiet, the Greeks just might be forced to join the Orthodox-Renimibi currency zone.   As seemingly fck all have given up working for a living.

And the hits just keep on coming.

Tue, 08/05/2014 - 09:49 | 5048444 asscannon101
asscannon101's picture

HUZZAH!! We've saved Greece- again!! Oh, wait...

Tue, 08/05/2014 - 10:19 | 5048600 barre-de-rire
Tue, 08/05/2014 - 13:43 | 5049811 QQQBall
QQQBall's picture

Article on Bond Yields - did I miss the metion of what the Yield Rate is...?

Tue, 08/05/2014 - 15:18 | 5050542 Jano
Jano's picture

Seems, that Ukraine will take down the Greece?

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