If Greek PSI Deal Was 'In The Bag', Greek Bonds Would Be Rallying, Not Dumping

Tyler Durden's picture

As headline after headline suggest that the PSI deal is getting closer and the market appears to be pricing in that headline-driven excitement, we cast a very skeptical eye over the performance of Greek bonds today. Short-dated GGBs, the August 2012 issue for instance, would be expected to rally if the deal was close (or even anticipated by the market) but instead, this 8-month bond traded to new record low price (and obviously therefore record high yields of 421%) today with quite a significant drop from EUR31.5 to EUR30 on the day. Further out, the 5Y GGB is the cheapest-to-deliver and is trading at EUR18.75/23.25 (quite a spread), down more today, and still well below an approximate EUR32 take-out. While there may have been some unwinds in the cash-CDS basis today, it seems to us that the greek bond market is absolutely not expecting a PSI deal and therefore risk-on rallies on the back of this (a debt reduction that will still leave Greek debt unsustainable) seem overdone at best (unless the IMF can cajole the US Congress to untighten its wallet some more - and even then, its not the solution Greece needs).

1Y GGB prices continue to drop - even as the 'deal' is supposedly in the bag...

As the price term structure shows GGBs trading well below any NPV-based take-out level and even very short-dated debt now trading down considerably.

Chart: Bloomberg

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GeneMarchbanks's picture

'unless the IMF can cajole the US Congress to untighten its wallet some more - and even then, its not the solution Greece needs'

Untighten, that is some quality stuff. I keep no beverages around, thank goodness.

Oh regional Indian's picture

A PSI deal.

Sounds paranormal to me.


LawsofPhysics's picture

LOL!  I agree, if fact I'll go see if the BROKE bum under the bridge will "untighten" his wallet so I can have a burrito.  Totally fucking stupid.

Corn1945's picture

Heading towards 100% loss.

misterc's picture

In Dec '09 Fitch downgraded Greece from A- to BBB+


The research team responsible for this should be teared and feathered. Rating agencies should be held accountable for their publishings.

skistroni's picture

Their loss is my gain. 

agent default's picture

Unless you are somehow tied to Unigestion or something like that, the only thing you will gain from this will be returning to a currency that will make the Zimbabwe dollar look rock solid.

oceanview76's picture

ISDA says 100% loss is not a credit event.  It's only a credit event if losses exceed 125%.

ucsbcanuck's picture

But, but - you can't lose more than 100% :-)

skistroni's picture

Of course THEY can. We'll default on all of our debt, and then they will have to buy our drachma bonds with yields off the charts of fixed-income fund analysts. Do you see it now ?

oceanview76's picture

ISDA petitions all sovereign nations governments to hold any bondholders unwilling to accept 100% losses or any CDS holders asking for a payout on GGB's default to be held indefinitely as enemy combatants and terrorists without a right to trial.  


agent default's picture

ISDA had better call this a credit event, because if they don't, sovereign debt is the new subprime and nobody will give a fuck how many As S&P says your creditworthiness is.  Expect yields to skyrocket if this credit event is not certified.  Not that fixed income is a good place to be these days anyway.

taniquetil's picture

The new plan is for Greece to bail itself out with "voluntary" 200% haircuts on their debt obligations.

monopoly's picture

They just need to default, pay 0 debt back, leave the Eruo, print Drachmas, suffer the pain and eventually be reborn as Greece, a sovereign country. Yes it will take a decade to pull off, but they blew it and have to pay the price.

No more retirements for hair dressers at 50.

agent default's picture

Yeah but what happens in the meantime? It is not as is Greece produces enough to feed its own population, the guys are importing beans from China for fucks sake.  And what about fuel?  That country will go back to the stone age before it manages to put some sort of production together.

Cognitive Dissonance's picture

Everyone knows the bond market is traded by fools who will soon be parted from their 'money'.

The stock market is where the smart people play. The proof is the relentless rise (pump) over the last few months. See, I told you all was well.


Imminent Crucible's picture

There's no such thing as "ex-Goldman Sachs". Once you've worked for that mob, you're always their man. Witness Jim Cramer.

Scottj88's picture

For every seller there is a buyer.

We know who the buyer is...

And we know they don't take losses...

Something is in the bag.  This is just the pathetic drama before the main event.

Scottj88's picture

Who even buys bonds anymore?  And why?

Overflow-admin's picture

Is that me or nobody noticed the *glitch* in EURCHF?



Tylers, any exp?

lizzy36's picture

Oven mitt/fat finger = trader error

Scottj88's picture

Algorithms giving away what is about to happen.

Dollar tanks, stock market goes up, europe saved for anoter week, and physical gold and silver to the moon.

Kick the can a week or two, maybe something will work itself out then.

bnbdnb's picture

Strong CHF across all currencies in the blip, not just EUR.

lizzy36's picture

How does the IMF throwing worse money after bad money help anything?

As soon as they are done with Greece, they are going after Portugal. And after that Ireland.....Soon to hit Spain and Italy.

Hey but Jabba the Summers will soon be at the head of the  World Bank....Maybe DSK can be his VP. Status quo has done so many favors for the world in the last 15 years.

Rally on.

Texas Ginslinger's picture

The 1 year Greek bond yield keeps going north;  421

The Baltic Dry Index has been heading south;  974

Eventually these 2 numbers will probably meet.  

How about a contest to see who can guess the date of the intersection point..??


Snakeeyes's picture

542 basis point pop in the 2 year Dolmathese rate!

Greek Optimism Turns Sour Like A Bad Dolmades – Well Intended Central Plans Are Difficult to Control


Snakeeyes's picture

It should be an interesting couple of weeks.


Some sort of deal makes it possible for Greece to avoid default, but the haircut signal is a dangerous one. Would YOU buy bonds when the country is willing to cut bonds by 66%?


Greek Optimism Turns Sour Like A Bad Dolmades – Well Intended Central Plans Are Difficult to Control


theyenguy's picture

Tyler thanks for the article. A default by Greece means that it will be shut out of the bond market and will need seigniorage aid from the EU ECB and IMF Troika. Greece does not now have, nor will it have after its soon coming default, debt sovereignty, as it is a hopelessly insolvent nation. Greece will massively lay off state workers as its constitutional prohibition on dismissal of public workers is abandoned. Structural reforms will open closed professions and dishonor national wage contracts which will reduce private industry wages by least by 30%. What little state industry exists in Greece will be eliminated or privatized. Greek Socialism soon and European Socialism eventually are going to the slaughter house.

The new dimension of globalism is security and stability replacing growth and prosperity as destructionism is operating to replace inflationism. Out of the S&P sovereign downgrade and the soon coming default of Greece, the dynamic of destructionism will produce a region of global governance where the dynamo of diktat will provide both moneyness and political rule. Catalysts of the loss of debt sovereignty and regional trade imbalances will cause leaders to meet in summits and pool sovereignty to establish a Federal Europe with a fiscal union and empower the ECB or the Bundesbank, that is Buba, as the Euro’s Bank. Out of a global credit breakdown and financial collapse, fate will establish regional global governance in all of the world’s ten regions. We are entering the age of the ten toed kingdom of regional global governance as foretold in bible prophecy of Daniel 2:31-33.

The Reich's picture

When you have eliminated the impossible, whatever remains, however improbable, must be the truth.

ambrosiac's picture



It's a fractional default.


So what else is new.