How To Make A 135% Annualized Return In 4 Months

Tyler Durden's picture

Update: the expected next step: "GREEK 2023 BOND PRICE FALLS TO 14.51 PERCENT OF FACE VALUE" - but it was a "no brainer" trade... a "trade of the year" trade... Tough break for Greylock. As we said "Um, distressed bond expert guys - the bonds you should have bought are the old UK-law bonds which may return least you had some covenant cover." Oh well - at least it is "other people's money."

Back on January 22, (Subordination 101), we advised readers that the one virtually sure way to make a killing in the bond market is to i) buy up a fulcrum Greek piece of debt, i.e., international/UK-law bond with strong covenant protection ahead of the country's restructuring, ii) refuse participation in the cramming down PSI, which was nothing but a GM-type exercise in covenant stripping, and iii) sit back and enjoy the money trickle in. Back than the €450 million bond of May 15, 2012 traded at ~75. Today, that same bond is about to generate a 31.26% cash on cash return, or 135% annualized, as it is Greece that has blinked, and according to the FT, has decided to make a full bond payment on this issue to avoid an out of control sovereign default, even though by doing so, it reduces its cash holdings by a third to just over €1 billion as discussed yesterday, and risks pushing both the PSI participants and its citizens into a murderous rage, as instead of complying with its mouthing off during and after the PSI, that not one bondholder would get a par repayment (nor apparently use the cash for public proceeds such as paying salaries), the one entity who ended up having all the leverage was those bondholders, who went against the grain, and held to their covenant rights. Just as we suggested. End result...

From the FT:

Greece is set to repay fully a €450m bond that matures on Tuesday after failing to reach a deal with holdout investors including private banks and a US-based hedge fund.


The expected move marks a significant twist in the restructuring of Greece’s debts. “It was considered imprudent to default on a bond issue at a moment of political instability, when the country’s membership of the euro is being questioned,” said an official involved in the transaction.


The bond was issued under UK law unlike the €177bn of Greek-law sovereign debt held by private sector creditors which was restructured in March with investors taking a 75 per cent loss on their holdings.
Greece has enough funds to cover the repayment after receiving a €4.2bn transfer last week under its second bailout agreement with international lenders, a senior banker said.


“It was a sensible decision to pay up … In this environment you don’t want another negative shock,” the banker said.
The same official said the decision to repay the bond in full “would not have any bearing on future decisions regarding other similar bonds.”

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HomeBrewPrepper's picture

Figures, I miss all the good trades. I read zh numerous times a day and totally missed that one. Hindsight sucks...

dannyboy's picture

How the fuck did you miss it? Subordination 101 article is probably up there with Zerohedge's famous articles. Either that or you didn't understand it. They have linked to it almost weekly in explaining the european sov bond market.

youngman's picture

There is a paragragh missing from the has to deal with the timeframe of payment...where it is normally 5 days for default....standard is now 30 days or more...its sounds like it can be extended with a letter of notification....just another weird greek Default extending the date of the redemptions.....I thought it was a hard date......nope...just extend it a few more we wait..and wait...and wait....I don´t think the Hedgies will get their cash me they are going to have to wait for a month or two...IMHO

guiriduro's picture

Yeah, Tsipras should make that a straight-to-elections deal-breaker - I mean, in the case that you may need to consider some kind of default, the very people you least care about pissing off are the non-cooperative hold-outs when you have limited cash.  The money retained by defaulting on these can be spent buying a tiny bit of goodwill back from those who have cooperated, you're in default either way, but the co-operative ones are the ones who will most quickly welcome you back - the vultures need to learn the "nothing" part of the all-or-nothing trade.

Mitzibitzi's picture

So what do they do on Friday when they have another 3-billion-odd Euros to find? And only a billion or so in the kitty.

TheSpiritOfTheTimes's picture

Not to worry, the Euro clowns are going to throw more digital FIAT at them.What's best to extinguish a fire? Yeah, paper!


The new "old" saying in Europe goes as follows: "You kick the can until it hits that brick wall and bounces back at you!".

dcb's picture

the greek people need to kill these people, even after the elction result that just happened, then people do this. these people3 who decided this are traitors. I'd imagine they will have to flee the country, but it should come as no surprise because this is why goldman installed these people in the first place. just beyond belief, makes a joke out of democracy!

TheSpiritOfTheTimes's picture

..."makes a joke out of democracy"

Hmmm... I have come to think in the past years that democracy IS a joke.

Take the US, one example among many. Sheeple decide which sheeple (out of two parties) is going to rule the country in the name of corporate interest (in other countries add religious/other fanatism, where ever sheeple might be allowed to "vote" or someone votes for them LOL!).

So usually a pretty dumb majority bullies a literate minority. Great.

Sorry if I overwhelm most readers!

Mitzibitzi's picture

Sadly, I'm forced to agree. Democracy does not work. Though, like Communism, it's never actually been practiced in a fashion that was ever intended for it to benefit the population, except for those in the fraction of 1% who set up the system in the first place - worked pretty fucking well for them!

The original American Republic seemed to work quite well for a while, though (as long as you weren't black, Chinese or a native American, of course), but the rent-seeking vampire class soon put a stop to that!

Chaffinch's picture

Well done Tyler! - But who is making decisions on behalf of Greece these days?

mendigo's picture

Apparently Greece assumed they would be dealing with a court system that would be more understanding. They'll have to fix that next time don't they realize that laws are only enforced when it works in favor of those in control?

They need a team of advisors from our SEC and DoJ.

Poor Grogman's picture

Well done chaps, I looked at it but didnt bite.

Great call..

Watson's picture


When you get definitive information was to the payment being made, could you put it on the site somewhere? Or even (definitively) payment not made on ?

Dien Bien Poo's picture

they should selectively default. very simple.

1. zero price if holder is a prop group or Hedge fund.

2. 35 cents if you are a foreign bank.

3. 50 cents if you are a Greek domestic bank or retail investor.

 4. 1 cent if you are Greylock for hours of amusement watching you wearing your mothers dress and lipstick and pretending you know what youre doing.


drivenZ's picture

if anyone would like to hear what greylock was thinking(atleast in the last restructure) see link below with interview of Hans Hume from greylock...They were obviously very close to the deal, perhaps they were just talking their book. Who knows what they were actually doing.

Shibumi2's picture

CONGRATULATIONS to Tyler Durdan(s) and STAFF for an EXCELLENT ANALYSIS and, just for good which happened to be 100% correct!


I remember reading this summary back in January carefully as I had been interested in finding an entry point into Greek Bonds. Coming from the wacky world of manufacturing....(that's BUILDING REAL STUFF, everyday you financial types)...I am fact, and logic driven, and this was the first example of what I consider an empiracal analysis complete with data and APPLIED REAL WORLD LOGIC.


I did not pull the trigger on the trade for reasons which still make sense to me in hindsight, but I DID add ZH to my daily read and haven't been disappointed in the quality and analysis.


99%+ of the BS from the financial world is  an embarrassment...newsletters screaming headlines and world ending disasters that I stopped paying attention to long ago. Although you folks are clearly into the FINANCIAL DOOM camp, you are still jaded enough to continue to try and make a buck while the country swirls the bowl.


Count me in!