As New Greek Bonds Tumble To All Time Lows, Is Greece About To Re-Default In 5 Days?

Tyler Durden's picture

Back on May 5th, before the shocking outcome of the Greek elections was known, and before anyone had even heard of the May 15th €430 million bond maturity, we explicitly warned that in the case of continued lack of government in the country (predicting the inability to form a gogvernment) that, "it is unlikely that Greece can persist under anarchy, especially with another critical event coming due: a €430 million payment on an international law bond that matures on May 15, and whose owners have held out from the PSI process (remember that? apparently not all has been swept under the rug). In fact we now know that the Norwegian sovereign wealth fund could very well be the entity that will demand payment and when it doesn't get it will promptly proceed to sue Greece." Indeed, as explained, the bond is held by non-PSI holders, and it has international-law covenants, in other words by parties non compliant to the PSI agreement and whose claims must be satisfied unless total chaos were to break out in the sovereign arena! Which means that for all the rhetoric about the successful Greek PSI with acceptance rates of nearly 97%, it is one tiny issue that can derail the whole process and send Greece into an out of control default.

 Recall what only Zero Hedge warned back in January: "while the bulk of the bonds, or what is now becoming obvious is the junior class, can be impaired with impunity (pardon the pun), it is the UK-law, or the non-domestic indenture, bonds, which are the de facto fulcrum security. And since the notional outstanding here is tiny, it is quite easy to build up a blocking stake in the bonds and to obtain full control of the process" It appears that more have grasped this outcome, and now 5 days ahead of D-Day are once again dumping all exposure to the bond which some other hedge funds called a "No-Brainer" and the "Trade of the Year."

First: here is what Bloomberg followed up with a few days after our post:

Two months after forcing through the biggest-ever sovereign bond restructuring, Greece once again faces the prospect of becoming the first developed nation to default on its debt.


A decision to pay the holdout foreign-law bond investors may have to involve the so-called troika of the European Commission, European Central Bank and IMF, which are supervising the country’s bailout.


If they decide to pay, Germany and the troika have to come up with the money,” said ITC’s Koutras. If Greece doesn’t pay, the foreign parties “will have to approve it,” he said.


Amadeu Altafaj, a spokesman at the European Commission in Brussels, said in an e-mail that a decision on whether to pay holdouts “is a decision of Greece and only of Greece.” An ECB spokesman in Frankfurt declined to comment and an IMF spokeswoman in Washington didn’t respond to an e-mail.


As Greece struggles to restructure its economy and stay in the euro region, politics may trump longer-term considerations such as continued access to capital markets. Along with a decision on the bonds, the new government will be under pressure to implement 3 billion euros of cuts immediately, followed by another 12 billion euros in 2013 to 2014, according to UBS AG analysts led by Stephane Deo in London.


Greece achieved a high participation rate in the PSI debt exchange because almost all of its debt was governed by domestic law. Parliament legislated to insert so-called collective action clauses, or CACs, into terms of the notes retroactively, allowing a qualified majority of bondholders to agree on a loss that holdouts would also be legally obliged to accept.


Bonds governed by foreign law aren’t susceptible to such treatment by the Greek Parliament, meaning that any decision to default may land a new government in a foreign court where it would have to defend its actions.


“So far, everything has been done legally in Greece,” said Athanasios Vamvakidis, the head European currency strategist at Bank of America Corp. in London. “Failure to pay would be clearly illegal. They will lose in court, and it will cost Greece and the euro zone more in the end.”

In other words, a verbatim, if rather dumbed down, transposition of everything we warned back in January.

And second, here is why anytime someone tells you a trade is a "No Brainer", and is "the trade of the year", you should run...

So yes: not only has nothing been fixed in Greece (sorr y all you PSI fans), but the country may now be forced to default (again) next Tuersday, when nobody expects it, only this time, there will be no government at all for damage control.

Popcorn time.

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EscapeKey's picture

I only take investment advice from Leo.

Eclipse89's picture

Charlie "The Mole" Munger is BTFD.

Quinvarius's picture

Berkshire Too Full of Derivatives

IBelieveInMagic's picture

Not to worry, they will shortly find cash in the pillows and the creditors will be paid by a mystery benefactor.

machineh's picture

As Jim Rogers used to propose to venal petty officials whilst motorcycling round Africa, 'Surely there's a small fee we could pay to resolve this misunderstanding.'

Doubleguns's picture

In south africa I simply said whats the tax on something like this usually run. It worked.


Some how I dont think this situation will be a small taxing event.

Popo's picture

Stupid off-the-cuff question, here:   Why don't nations pledge physical collateral when they borrow money?  (as in:  At the time of borrowing).  Like islands,  buildings, factories, etc.

Or would that be too smart for all the parties involved?

Bugsquasher's picture

Let's see now.  That is exactly what Germany did to get out of the Weimar hyper-inflation.  It bought them Hitler and the NSDAP.  Great idea! 

kindape's picture

QE to infinity would do nothing. banks cant lend out that money that Fed has added to balance sheet, they can only turn it into notes/coins if they want - and thats not what they need.  QE to infinity crowd gonna be burned big time methinks. its not that simple..

ActionFive's picture

QE to infinity would do nothing


But grow our enormous debt.

cfosnock's picture

Yes you are correct except in one regard this is about "saving" the banks and QE saves them at our expense. If their is no QE their balance sheet will take them down, and the executives will not get bonuses this year. If their is QE it will lead to more mega bonuses for the banks executives, even if it is in a depreciating currency, and bonuses is all they care about. Past experience dictates that for ever major crisis the Fed has printed money why would this one be any different? All they know how to do is print.

NotApplicable's picture

Either path leads to their ultimate death, with the only real difference being the time-frame. Given that predictability is all but impossible now in any frame other than the shortest, the choice is a "no-brainer." Literally.

In Delusionland, tomorrow never comes.

NotApplicable's picture

You're assuming there will still be functional banks not labeled TBTF.

QE to infinity will happen because of Thatcher's TINA.

The goal isn't to save the financial system though, but to save the power structure it's engendered. Which means, all sovereign debt service costs MUST go to zero, regardless of the true costs to society. What we're witnessing now is the transition from a formerly free, capitalistic society to a fully enslaved dependent upon criminals one.

How many people in the past thirty years would've thought that the 10yr Treasury would be at 1.88% at the same time debt issuance is growing geometrically? Or how many people today think that the same will happen to the 30yr eventually? (likely only students of Prof. Fekete who understand how a falling rate environment works to transfer wealth)

Like I said, this is a transition phase. To believe it isn't is to attempt to stay rooted in the past. We'll ZIRP today, and ZIRP tomorrow, and every day after that until at some point the notes are refused as payment. Until that day though, we must ZIRP4EVA.

jus_lite_reading's picture

I have no pity for the fools who bought this trash... and Leo's solar panels...

Hey Tyler, can you see if you can bring Leo back, just for good old times? LMAO!!

Jack Sheet's picture

Leo 's place has been taken by Rubber Scrota !

redpill's picture

Greece is going to default like dead people in Chicago will be voting for incumbents in November: early and often.

The trend is your friend's picture

i guess i should hang on to my vxx position.  that might turn out to be the "trade of the year"

jus_lite_reading's picture

Clever redpill...

Hey, a little OT but... I think a lot of people will be shocked to see that 75% of conspiracy theories turn out to be true. The problem is that some conspiracy theories seem so "far fetched" at first that you just write them off... until, they turn out to be true or at least have helped to uncover some truth that was hidden...

Remember all the rumors a few years back about "FEMA camps?" First, you hear people just laughing at the thought. "How absurd. Never happen" they say. Well, their existence has been confirmed... their reason for being is still questionable but I think we see where they are headed... "natural disaster" my ass

a growing concern's picture

Why shouldn't dead people be allowed to vote?  Zombies have constitutional rights, too, you know.

AlaricBalth's picture

If Greece had any intestinal fortitude whatsoever, it would default and tell the ECB and anyone else it owes to go straight to hell!

I am on to you's picture

Your damn right,and dumb the 450 American Used Abraham tanks and the 3 French freagats and warplanes and the German U boats,in a blackhole far far away,and the bookmakers to!

eatthebanksters's picture

Maybe they could do like a nuclear bomband blackmail the world for food and oil?

Aziz's picture

Apparently bookmakers have stopped taking bets on Greece leaving the Eurozone...

agent default's picture

They will  have formed a government by then.  Because what the troika says, goes.  And that's it.

SDShack's picture

Almost right. It will be paid. E450m is chump change for the IMF, ECB and Fed. Either one or all will pay it, then lie about where the money came from and say Greece magically found the money and paid it. Lies is all TPTB have left. Besides, Greece doesn't have a working govt and won't have by 5/15, so who would blow the whistle? Perfect cover for the Central Banker lies. Extend and pretend. Lie to control the sheeple. The sheeple are so stressed they would rather believe lies then know the truth.

newworldorder's picture

Wish I could give you + 1000.

GeneMarchbanks's picture

Popcorn time

So they have a government to announce re-default but then  also don't have one(government) to backstop the potential fall-out?

Schrodinger's Cat indeed.

youngman's picture

My bet is that they do not pay it......not because they can´t....because they can´t find anyone to sign the

HarryM's picture

Plus , nothing gives a Greek a woody like sticking it to Germany

Bunga Bunga's picture

Everyone should be aware that you can get a haircut without appointment.

youngman's picture

It would be fun to know who owns all of them......

Village Smithy's picture

Yes, they may be very willing to take a hit on these bonds if they have set themselves up to profit big-time from the ensuing chaos.

icanhasbailout's picture

"No brainer" - I do not think this means what you think it means

writingsonthewall's picture

Is redefault the same as default?


Will this be a CDS event? - or does it only count defaults?


Lots of 'faults' - but noone left to blame eh?


Time for war is upon us.

a growing concern's picture

Maybe in order to understand mankind, we have to look at the word itself. Basically, it's made up of two separate words — "mank" and "ind." What do these words mean? It's a mystery, and that's why so is mankind.

Al Capowned's picture

Apparently they are they about to re-default because Goldman sold them 5 trillion in Big Fat Greek Gay wedding debt obligations thats about to go toxic ,

tocointhephrase's picture

Ding ding ding ding ding...........

vote_libertarian_party's picture

Bloomberg(?) had an article that said there is $520B of those gvt bonds floating around.  Who owns those AAA quality assets? 


And the off balance sheet derivative products?

apu123's picture

CNBCialis is reporting that Pasok, New Democracy and the Democratic Left have agreed to form a coalition government.  It is "Risk On" again, problem solved!  If true I wonder how many Euros were spread around those parties to buy compliance?

financial apocalyptic contagion's picture

since when does Greece get counted as a developed nation

distopiandreamboy's picture

I haven't seen enough "Greece defaulting is good for the markets" propafanda yet to believe that the time has come

TheFinancialNinja's picture

Speaking of Leo, whatever happened to him? Haven't seen him around lately...

loveyajimbo's picture

We need to force Lloyd (The 'Roid) Blankfein to live in Greece for a year... see if he can sell them some more "Backdoor" derivatives...