Greek Bonds Trading With Expectation Of Substantial Further Haircuts

Tyler Durden's picture

We know that the latest plan for Greece revolves around a 50% haircut for private bonds (not to be confused with bonds held by the ECB, which will somehow exist in some Schrodingerian universe in which they are neither defaulted nor haircut). So far so good. It also means that very soon, the bulk of publicly traded private sector debt, of which there is about €200 billion will get a 50% cut. In the parlance of our bond times, this essentially means trading "flat" going forward, as we now have the terms of a bond transaction, and no further interest will be accrued (however this is merely speculation: there is obviously no detail). Which is why we present the entire Greek bond curve, which show that while bond maturing around 1 year from now have since jumped to just shy of the 50 cent on the dollar haircut level, bonds further down the curve are just not buying it and continue to trade in the 30s! In other words, while Europe may have convinced the EURUSD shorts that everything is fixed, Greek bondholders are certainly not convinced. Those who believe that the ECB will go ahead and carry through on its promise of a 50% haircut and no further, should be buying up the entire curve which trades below 50. We also wish them good luck. Stocks and algo driven FX may be fooled but the bond market certainly isn't.  If anything, judging by prevalent values, even assuming some modest accrued interest, the bond market is expecting a final haircut of about 62%.

Charting cash prices of Greek bonds vs maturity:

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ArkansasAngie's picture

Close enough for government work ... eh?

agent default's picture

Well certainly within MilSpec standards anyway.

Cognitive Dissonance's picture

We all know what the final Greek haircut will look like.

Final Greek Haircut

web bot's picture

Hey CD,

Isn't it just amazing how things are all well this morning. We've lurched from one crisis... now just waiting for the next. Just next time, when the $1.4 Trillion is gone, then what?

This is only beginning.

Cognitive Dissonance's picture

It is nice to know our fearless leaders have once again saved their bacon.

Time for breakfast, sunny side up please with whole wheat toast and a side of that saved bacon.

Chump's picture

Your exponents would suggest at least doubling that.

kaiserhoff's picture

Would a 100% hair cut be a credit event?  I think not.  Where can I sell insurance and never, ever have to pay off?

bernorange's picture

Pretty sure that is the mafia's racket.

machineh's picture

I will gladly deny your CDS claim today in exchange for a lawsuit next Tuesday.

Sue the International Swindlers and Defrauders Association!

Ancona's picture

Anyone who believes giving Greece even more money that they cannot pay back is going to cure anything, needs to send me a little bit of the dope they must be smoking so I can somehow feel good about all of this bullshit as well.

achmachat's picture

I keep looking for where to file a complaint letter because I refuse that my taxes keep being used for this nonsense.

s2man's picture

I think its called, Occupy D.C.

mirac's picture

I need something stronger than smoke...or smoke and a whole lotta scotch

Cassandra Syndrome's picture

No better vehicle to derive the true dynamic equilibrium than the free market. A bunch of silver spooned elitist bureaucratic central planning Eurotwats with the pretense of knowledge couldn't run a bath let alone understand what a bond actually is.

HedgeAccordingly's picture

insanity ES chart .. market not even open yet

qussl3's picture

Cant hedge it, dont want it.

boom goes the dynamite's picture

so what does shorty do?

jcaz's picture

The bond market never lies,  the stock market rarely tells the truth.

Silverstar's picture

But now with the whole Euro Crisis solved /sarcasm/ why is this happening to the german Bunds ??

Is the risk only transferred to the center ?

LongSoupLine's picture

Dow 12k+...CNBS shilltards foaming at mouth.  All's well.

Milton Waddams's picture

Paraphrasing:  "if you have alot of people not paying their mortgage, imagine the amount of purchasing power you have in the country". 

jcaz's picture

No paraphrasing necessary- those were Cramers' actual words..... I'll chuckle when that clip gets replayed a few months from now, fucktard.....

FunkyMonkeyBoy's picture

50% or 62%... does it really f**king matter? Seriously, the whole economic system is fake...

... why even bother trying to make sense of it all Tyler? to what end...?

Chump's picture

The longer they try to avoid reality the worse its return will be.  That and there's a shit-ton of anger just festering, festering, being kept in check only by the need to keep some sense of normalcy (pay bills, eat, etc.).  These OWS folks are pikers compared to what's coming.

BandGap's picture

The middle class is being placated by the upward swing in the NYSE.  That is the strategy, the stock market is first and foremost when it comes to ehibiting how healthy our economy is.

And it works.  Talk to anyone with a 401K.  They love the way things are "picking up".


Diogenes's picture

They couldn't pay back the money before and they can't pay it now. Every year they spend more than they take in and every year they go deeper in debt. They can't pay the interest, they can't pay the principal, they can't  pay back any of it ever.

What really matters is if they decide the CDS don't count. If they can arbitrarily cut the value of your investment by 50% and make it impossible to buy protection who will be crazy enough to buy Greek bonds in the future? Or for that matter any European bonds since they are all in the same boat?

M.B. Drapier's picture

Academic economist Karl Whelan just made a good point about the inadequate reduction just agreed in Greece's GDP:

But remember we have some other countries with debt ratios at or heading for 120% (e.g. this one) and need to pretend that’s perfectly sustainable. Saying now that Greek debt needs to be 80% to be sustainable would let that particular cat out of the bag.

jefeweiss's picture

A CDS is insurance, regardless of what financial companies and regulators say, and selling insurance to someone who doesn't have any stake in the outcome will always cause a moral hazard.  That's why you can't take out fire insurance on the guy down the street's house, because your stuff and your family doesn't burn up if you set the house on fire.  Goldman Sachs and the rest of those arsonists well understood that.  CDS always should have been regulated as insurance, and limited to what the insured had at stake and with serious rules to make sure that the insurance company can make good on any losses.  Without that a CDS was always and will always be pie in the sky, fantasy land, unicorns and rainbows style finance.

falak pema's picture

62% is just fine 70% would be even better.

Nate H's picture

why would you sell into a 70% haircut if you can get a 50% haircut?

Josh Randall's picture

So Greek Bond holders get a kick to the rocks -- but the Eurozone Finance oligarchs ecourage you to buy other EU country bonds under the premise that you will be just fine.

Nice - where do I sign-up ?

GOSPLAN HERO's picture

California and Illinois applying for EU membership?

Note to self's picture

Would 62% constitute a credit event?  How about 75%?  Or 99%?

NEOSERF's picture

Not any more...anything over 50% would be deemed "an act of war" so they would get to suspend CDS rules...

Note to self's picture

ahhh . . . so the banks aren't lawyering up, they're armying up.  I get it.

JoBob's picture

I like articles that refer to a Schrodingerian universe. I knew we weren't in Kansas anymore!

NEOSERF's picture

Good article on FT on the "conjuring of $1T out of thin air" by Gayne Davies

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights. EMU summit leaves €1,000 billion to be raised


TooRichtoCare's picture

Steve Liesman seems to love getting into a debate with Simon Hobbs, despite the fact that he is intellectually far inferior to Hobbs and knows far less about the intricate details of this Euro bailout package.  He throws himself into these discussions with such's funny to watch.

Capitalist10's picture

"bonds held by the ECB, which will somehow exist in some Schrodingerian universe in which they are neither defaulted nor haircut"


Brilliant, Tyler.  They should call them Schrodinger's bonds. 


Of course, you know what happens as soon as anyone peeks inside the ECB box...

topcallingtroll's picture

They should not be buying up the curve below a fifty percent haircut.

Now that the majority of bonds have received a fifty percent haircut, the greeks can default on the remainder without damaging the banking system.

No one knows now if CDS will pay, hence the price action.

rumblefish's picture

can someone  please reeducate me on what bad news. seems like nothing phases this market.