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Greek Bonds And PSI - Beware The Ides Of March
Via Peter Tchir of TF Market Advisors,
So what is happening with PSI? Here is a chart of the Greek bonds due on March 20th. They have allegedly been trading up. I use the term “allegedly” because the bonds are supposedly quoted 2 to 4 points wide, on a million up. So not exactly a liquid market. But let’s assume the chart is reasonably close.
The March bonds are up a couple of points today. The May bonds trade at 33 and after that, all of the Greek bonds trade between 20 and 30, largely depending on coupon with a slight bias towards better prices for nearer term maturities.
So what is the PSI meant to do? Is the PSI meant to treat all bonds equally? If so, then it makes no sense for the March bonds to be trading at a significantly higher price. The ECB may own some of these bonds, and may be getting paid out at par, but that shouldn’t affect the price of non ECB held bonds. The payments and PSI aren’t pro-rata.
By all indications, PSI will chop the principal amount in half, and leave you with a small notional of long dated, low coupon bonds. Most estimates put the value of those long dated, low coupon bonds, between 50% and 70% of face. So the “NPV” loss shows up as around 70%. Maybe the percentage of people participating is high enough, the austerity is enough, and the EFSF kicker is enough to give the new bonds a value of closer to 90% of par, then a price of 45 for old bonds would be justified. But it would be justified for all bonds.
In the real world, bonds would exchange par plus accrued for the new bonds. So each bond would have a “claim”. So the bonds with the most accrued interest would have the most value. That is not the case here. Bonds with the shortest maturity have the most value. Is it possible that the PSI that has been cobbled together gives better payouts for bonds closer to maturity? That is possible. The IIF and Greece may have decided to pay more to shorter term bonds. It wouldn’t be standard, but on the other hand, the IIF isn’t exactly known for their bond restructuring expertise and experience.
So what else is happening here? Do investors hope to buy these bonds and guilt Greece into paying them out at par? Is the hope that the Troika will give Greece money, and Greece out of fear of default will use some of that money to pay holdouts from the PSI at par? That makes some sense, but isn’t the Troika supposed to wait for PSI before releasing money? Will they release the money if there are a lot of holdouts, particularly in this March bond?
Maybe it is simply a bet on the ineptitude of the politicians. Betting that they won’t finalize a PSI in time for the March 20th deadline, so will have to pay these off at par (remember, they just paid some bonds off at par in December). That bet also makes some sense. In “holdout” trade, you rely on Greece flinching and paying you out in spite of the message it sends to those who agreed to PSI. Under the “incompetence” trade you just need them to screw up enough that the PSI isn’t done and voted on before March 20th.
In any case, watch these short dated bonds both on an outright basis and versus the longer dated bonds. Right now, it looks like they are signaling some more monkey business coming up. Either the PSI is maturity weighted, or a decent number of investors are willing to bet that it will be profitable to holdout. Hopefully we see the PSI details soon and can make an assessment. It is possible the longer dated bonds are cheap, and I view increasing prices in the short term bonds as signs of another round of headlines where the Troika gets mad at the private sector and it provides them with another reason to stop the bailout.
Main and IG have both drifted off their morning tights, but HY17 is still pretty much up there. Makes sense given resilience of that market. HYG caught up to HY17 on Friday and with the bounce in the actual bond market late day, actually closed “cheap” to fair value for the first time in recent memory. Given how illiquid the HY bond market is, it probably is technically still a bit rich, but worth watching this.
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Ides of March the is the 15th that gives them 5 buisness days for the bailout check to clear!
But Apple is ready to go over $500. That should be good for a week of blabble on CNBC, blended in with a little Whitney Houston.
So you still can't trade an Apple Share for an iPad.........
RON PAUL: "I CAN BEAT OBAMA!"
http://djia.tv/ron-paul/ron-paul-i-can-beat-obama-because-my-message-bri...
It's not who votes that counts, but who counts the votes.
-- Diebold
"It's not who votes that counts, but who counts the votes." - Uncle joe Stalin
Watch, they'll come up with the March interest payment. That's what this data is saying. Team Euro is a shoo-in for the gold in the Olympics can-kicking contest. Sooner or later reality will knock on the door but don't bet on sooner.
The (Greek) King is dead. Long live the King.
What's coming up in a few months? The (Italian) King is dead. Long live the King.
Then................
Greece DEFAULT! PLEASE FOR THE LOVE OF GOD!!!!
This all reminds me of several Sopranos' episodes where a hardware store owner (sovereign nations) got in too deep with gambling (private and public) debt to Tony and the gang (the global banking Ponzi) so Tony and Company took over the store and leveraged, stole and pillaged until nothing was left of the store or the owner.
http://www.imdb.com/title/tt0141842/
Goodfellas Restaurant Scene
+ 1000
It is called a ' bust out ' in goomba slang.
Yeah tell me about it! I am sick to bloody death of this mental madness day after day after day after day!
GREECE PLEASE JUST DEFAULT AND GET ON WITH IT!
This is the worst slow motion train crash I've ever seen in the markets. It's such bullshit - Rumours = market goes up, Retraction of rumours = market goes up , bad news = market goes up , no news = market goes up.
Now admittedly, my views may be tainted by the fact that I keep getting squeezed on my short EUR and short FTSE positions butttttt.....it's just so rigged it's unreal.
What to do people? New short @ 1.3250 with a stop above 1.3340? Hedge with an OTM EUR/USD Call?
http://www.youtube.com/watch?v=8tSo4IICBTY
This thing isn't going to tank from the first day (read your own post and learn from what you wrote). Wait until the market takes out the trend line and short then. So far it hasn't come close. The EURUSD can easily go to 1.35 by squeezing the existing shorts. You know this ship is going down but being right on the outcome and wrong on the timing is worse than the other way around.
Take your time and smell the roses. Other than Athens the flowers aren't polluted with tear gas right now. That won't last so enjoy them now.
Maybe close your short, wait for retracement and go long.
I have quit fighting against trend years ago to prove how smart I am in predicting a top or bottom. Unless the trend is clearly broken, don't fight against it.
There is a Bernake put at 1.30 so trade accordingly.
PSI = Pounds per Square Insurrection
Dey gonna burn dat 'mutha' down
This is such bullshit day after day just DEFAULT already Greece!
Everyone on here was screaming that Dec 19th last year was Greece blow up day. Then it is March 20th. Now it is no longer March 20th. At some point this will collapose but odds are it will be a lot later on than everyone seems to want to believe.
Everyone is watching for Greece to blow up first. While waiting intently on Greece, one of the other PIIGS will most likely go first or ........ even ..... Japan.
Are Greek CDS reflecting reality here given that a PSI precludes a "credit event" which would trigger CDS?
it makes sense for a "sweetener" to be added to short term bonds - as this is the most likely tranche containing holdouts. Earlier reports had indicated "additional" incentives to short dated maturities
Also given the headlines and can kicking event of last night, long term is pricing in the greater chance of default/3rd bailout further down the road
Come on. a 70% restructuring is a default. The rating agencies have to call it. If not, we have entered an eternal QE/printing crack-up boom that will drive notional prices parabolic.
Why?
BC there is no risk of sov. default.... SO, there is no risk to hedge.... SO there is only one trade, leverage and buy risk!
Of course this ends badly but that only happens when Bernanke is gone.... OR Oil hits $200
The World as we know it is made up of Lies.
Fuckin bulshit.
Ides are more Latin and Rome than Athens and Greek....Tyler you might be getting ahead of yourself by jumping to Italy before working through Portugal, Ireland
They shake some of you guys loose yet? There still hasn't been a 1% down day all year. Double-down, bears.
You guys obviously haven't heard CNBS this morning. Michelle CC has already ruled that it is all fixed\hedged.
Nobody has to eat any losses.
Ooooopa!
The circus must be in town. Goldman Sachs and JP Mporgan must be the ringmasters. If not them, then I don't know what corruption is manipulating these unnatural circumstances. It has to be corporate chicanery, to load the big payout, up front.
http://georgesblogforum.wordpress.com/
george, why don't you just stay the fuk outa here?
is the deal with the ecb and second bailout contingent on the greeks getting an agreement from the psi to cut and if so what % on the bonds needs to be cut for ecb to still give bailout