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Greek Bond & Stock Prices Plunge On Bailout-Exit & OMT Fears
While Greek leaders are proclaiming victory, intending to exit the bailout plan early and fund themselves in the public marketplace - just as they did in April (despite record poverty, unemployment, and suicides); it appears investors are a little less sanguine about the prospect. Greek bond yields have topped 7% for the first time since March and any gains from the 5Y bonds sold to hedge funds in April have now gone (and Greek stocks are at 13-month lows). The driver of recent weakness appears to be fears over whether Draghi's OMT will ever be real enough to monetize Greek debt and a re-rating based on more standalone risk if Greece were to exit the bailout program early.
As Bloomberg reports,
Greece’s government bonds declined, pushing 10-year yields above 7 percent for the first time since March, after euro-area finance ministers clashed with the nation’s leaders over their desire to sever a bailout program.
Greek 10-year bonds fell for a second day and the nation’s stock index tumbled to the lowest in more than a year. Ministers are watching Greece “with a certain skepticism and concern,” Austrian Finance Minister Hans Joerg Schelling said yesterday. The euro area’s second-biggest bond rally this year is slowing amid concern Greece won’t be able to finance itself at sustainable rates without the support of its regional partners. Benchmark German 10-year yields dropped to a record.
“We are starting to approach yield levels where doubts are starting” about Greece’s ability to finance itself, said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt. “There is a lot of uncertainty in the market and that is helping to increase pressure on Greek bonds.”
As we warned yesterday, decisions on the legality (or reality) of OMT are weighing on peripheral bonds (most notably GGBs):
While a ruling on the legal questions forwarded by Germany’s Constitutional Court is not expected this year, the hearing and questions posed by EU judges may give some early insights into their views and to what extent they might share the view of the German court that, unless several restrictions are imposed, the OMT should be considered illegal under European law.
European Court of Justice scheduled to hear testimony on the ECB’s OMT on 14 October
The ECJ has scheduled a hearing on the ECB’s OMT for next Tuesday, 14 October (starting at 9am CET), which we expect to last all day. Under the OMT, the ECB could purchase, without limitation, bonds of a member state that has entered into an ESM aid programme and agreed to be subject to its conditions. Earlier this year (see German Constitutional Court's referral of key legal OMT aspects to European Court of Justice is good news, 7 February) the German Constitutional Court (GCC) in an unprecedented move referred a long list of questions to the ECJ (see Appendix below) for a preliminary ruling after it declared admissible a constitutional complaint by some 30,000 plaintiffs (Gauweiler and others) against the OMT. The discussion and specifically questions posed by the EU judges to the parties involved (the ECB, etc) during the hearing might give some early insight on their views. We do not expect the ECJ to come to a ruling this year but the court’s advocate general may announce the schedule for the proceedings next week. Usually, it takes the ECJ about 16 months on average to rule on cases referred by national courts which implies that the OMT ruling could come by June.
German court insists on several restrictions for the OMT
The German constitutional court put some pressure on the EU court and made clear its view last February that there are important reasons to assume that the OMT would be illegal under EU law as it exceeds the European Central Bank’s monetary policy mandate and violates the prohibition of monetary financing of the budget, unless certain restrictions are imposed. These should require “that the acceptance of a debt cut must be excluded, that government bonds of selected Member States are not purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible.”
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It appears that fear is being seen in the riskiest of risky bonds that have been bid to the moon alice on the back of OMT hopes... 5Y GGB traded over 104 in September and is now back under 99...
and stocks have crashed back to 13-month lows...
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Let's see the Greek leaders push for a bailout exit when yields break 8, 9, or 10%!
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On the bright side, at least the Greeks are now competitive with Zee Germans...
Charts: Bloomberg
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greece again? sigh... groundhog day
Could've sworn the ECB could endlessly "talk" their way out of these messes.
Elsewhere: NBC alarmed as even some liberals no longer believe Islam is 'religion of peace' http://tinyurl.com/o9xar3h
islamic terror is a red herring created by the west as a pretext for waging war and destroying the entire middle east. are there radicals? thanks to the west, yes. Is islamic radicalism the core problem? of course not. a pretext created by the evil that runs planet usury to detract the sheeple and disguise the true origins of the crisis facing planet earth.
I am trying to decide whether to buy Greek Bonds or invest in Bernie Madoff's new fund.
Yes, I thought that this dominoe hd already been "contained"? WTF?
At least they are used to getting it up the jackson hole.
It's OK. I can juggle about a dozen crises at a time. I don't need all those digits on the tips of my hands anyway.
It's only a flesh wound.
Indeed. NOW we are starting to to doubt whether Greece can fund itself. Now. Not then, but now.
Now that they are no longer part of an imaginary program that never existed in the first place.
Cheezus.
The last graph was a nice touch, don't you think? I guess that's what passes for good news these days.
Like I said, he who deflates first deflates best....
More austerity!
Pull the Gold crowns from retirees!
JEFF GUNDLACH: 2.20% SHOULD BE THE LOW IN THE 10-YEAR YIELD, IF IT MOVES BELOW THAT WOULD BE A POLICY GAME-CHANGER FOR FED POLICY … ALIBABA WAS LIKELY TOP FOR STOCKS THIS YEAR … DEFLATION RISKS KEEP FED ON HOLD
Gee, thanks for the heads up.
I don't want to be long treasuries because that means we're Europe and Japan.
Do any of these financial 'anal cysts' ever consider that maybe everyone doesn't hold stock markets up as the most important thing in their society? Seems to me Greece has played this whole game masterfully so far.
They did phuck Cyprus pretty good!
Whos gonna buy them.....the rate chasers thats who....and there are plenty of them....
A little respect and a moment of silence, please. Sausage, 'The Riot Dog' has passed on...
http://www.thestar.com.my/Lifestyle/Features/2014/10/14/RIP-Sausage-the-...
Amen.
Hahaha. My gambling funds that I put into SPY yesterday goes from OTM to ITM to I expect OTM. Hedging with some TZA (russell is such a shit show) now that SPY is ITM. This is fun, kinda like roulette but it lands green. Sad part is I'm expecting an ECB/FRB/BOJ tag team to fuck the population even more with liquidity injections that would make Peter North blush. My shiny coins will benefit though, so I cannot complain.
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1413316800000&chddm=77418&chls=IntervalBasedLine&cmpto=NASDAQ:ZIV&cmptdms=0&q=NYSEARCA:SPY&ntsp=1&ei=SUg9VMjzJY2WqwGeloDQAg
Good luck with the TZA hedge today - hit all my stops and all 11K shares are out - but I got in a few weeks ago, so am OK. But what a shit show - Russell up 2.28% and TZA down fucking 7% as I type. I was ready for a 5% dip, bound to happen, even on this weak POMO day, but 7%? talk about a short squeeze...
But my big problem right now is a ~150 pound black bear cub (one of a set of twins from this spring) that has found out how to avoid the electric fence and dig under the fenceline, and is raising hell in my yard. We have removed all the apples, and maybe the shitbird will go away, but I kinda doubt it. He (or she) smells the apples in the house and tries to get in, I'm gonna have a dead bear on my hands. That is a REAL problem, fuck this so-called market - it keeps me out of trouble playing with my play money.
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On Bailout-Exit & OMT Fears
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With respect, this headline addresses the wrong thing.
It doesn't matter if Greek bonds can't be bought by ECB through OMT or anything else.
What does matter is that Merkel won her election, really really believes in all this EUR-nonsense, and the Greek numbers are still small compared to German GNP.
So the worst case scenerio is that Greek bond yields will fall because the German state (AKA German taxpayers) will be buying Greek bonds without limit.
And this is politically acceptable because, at a personal level, Merkel is really really popular.
What _could_ make the situation nasty is if the _Greeks themselves_ decide to default on bonds...but in such a situation I think Merkel would just _give_ (not loan) the Greeks money.
You have to factor in that Merkel is not going to be seen as the German politician who created the conditions for European-War 4 (following 1939, 1914, 1870).
Watson