This page has been archived and commenting is disabled.

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.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 05/10/2012 - 11:35 | 2413306 EscapeKey
EscapeKey's picture

I only take investment advice from Leo.

Thu, 05/10/2012 - 11:48 | 2413383 Eclipse89
Eclipse89's picture

Charlie "The Mole" Munger is BTFD.

Thu, 05/10/2012 - 11:56 | 2413426 Dr. Richard Head
Dr. Richard Head's picture

Barack the Fucking Dick?

Thu, 05/10/2012 - 11:59 | 2413446 Quinvarius
Quinvarius's picture

Berkshire Too Full of Derivatives

Thu, 05/10/2012 - 12:38 | 2413616 IBelieveInMagic
IBelieveInMagic's picture

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

Thu, 05/10/2012 - 12:50 | 2413666 machineh
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.'

Thu, 05/10/2012 - 13:53 | 2413914 Doubleguns
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.

Thu, 05/10/2012 - 14:01 | 2413953 Popo
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?

Thu, 05/10/2012 - 15:10 | 2414258 Bugsquasher
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! 

Thu, 05/10/2012 - 11:54 | 2413405 Silver Bug
Silver Bug's picture

It's QE to infinity or we ALL Default!

Thu, 05/10/2012 - 12:06 | 2413478 kindape
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..

Thu, 05/10/2012 - 12:26 | 2413562 ActionFive
ActionFive's picture

QE to infinity would do nothing


But grow our enormous debt.

Thu, 05/10/2012 - 13:00 | 2413705 cfosnock
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.

Thu, 05/10/2012 - 13:47 | 2413883 NotApplicable
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.

Thu, 05/10/2012 - 13:43 | 2413859 NotApplicable
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.

Thu, 05/10/2012 - 12:00 | 2413445 jus_lite_reading
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!!

Thu, 05/10/2012 - 13:42 | 2413866 Jack Sheet
Jack Sheet's picture

Leo 's place has been taken by Rubber Scrota !

Thu, 05/10/2012 - 12:03 | 2413459 maxmad
maxmad's picture

Default, Bitchez!

Thu, 05/10/2012 - 11:36 | 2413309 redpill
redpill's picture

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

Thu, 05/10/2012 - 11:47 | 2413377 The trend is yo...
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"

Thu, 05/10/2012 - 12:15 | 2413510 jus_lite_reading
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

Thu, 05/10/2012 - 12:17 | 2413528 a growing concern
a growing concern's picture

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

Thu, 05/10/2012 - 12:37 | 2413614 eatthebanksters
eatthebanksters's picture

Legalize Zombie marriage!

Thu, 05/10/2012 - 12:48 | 2413657 redpill
redpill's picture

Jesus hates brain-eaters!

Thu, 05/10/2012 - 11:37 | 2413310 I am more equal...
I am more equal than others's picture

Your time is up....

Thu, 05/10/2012 - 11:57 | 2413418 ThirdWorldDude
ThirdWorldDude's picture

To wrap it up in 4 words  ->

Thu, 05/10/2012 - 11:38 | 2413315 AlaricBalth
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!

Thu, 05/10/2012 - 11:49 | 2413381 I am on to you
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!

Thu, 05/10/2012 - 12:39 | 2413617 eatthebanksters
eatthebanksters's picture

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

Thu, 05/10/2012 - 11:37 | 2413321 Aziz
Aziz's picture

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

Thu, 05/10/2012 - 11:39 | 2413322 agent default
agent default's picture

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

Thu, 05/10/2012 - 12:07 | 2413444 SDShack
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.

Thu, 05/10/2012 - 12:34 | 2413593 newworldorder
newworldorder's picture

Wish I could give you + 1000.

Thu, 05/10/2012 - 11:39 | 2413324 GeneMarchbanks
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.

Thu, 05/10/2012 - 11:39 | 2413325 youngman
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

Thu, 05/10/2012 - 11:55 | 2413412 HarryM
HarryM's picture

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

Thu, 05/10/2012 - 11:39 | 2413331 Bunga Bunga
Bunga Bunga's picture

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

Thu, 05/10/2012 - 11:41 | 2413345 youngman
youngman's picture

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

Thu, 05/10/2012 - 11:52 | 2413403 Village Smithy
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.

Thu, 05/10/2012 - 11:45 | 2413363 icanhasbailout
icanhasbailout's picture

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

Thu, 05/10/2012 - 11:47 | 2413368 writingsonthewall
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.

Thu, 05/10/2012 - 12:23 | 2413546 a growing concern
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.

Thu, 05/10/2012 - 11:47 | 2413376 Al Capowned
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 ,

Thu, 05/10/2012 - 11:47 | 2413379 tocointhephrase
tocointhephrase's picture

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

Thu, 05/10/2012 - 11:50 | 2413389 vote_libertaria...
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?

Thu, 05/10/2012 - 11:53 | 2413402 apu123
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?

Thu, 05/10/2012 - 11:56 | 2413421 financial apoca...
financial apocalyptic contagion's picture

since when does Greece get counted as a developed nation

Thu, 05/10/2012 - 11:59 | 2413448 distopiandreamboy
distopiandreamboy's picture

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

Thu, 05/10/2012 - 12:00 | 2413451 TheFinancialNinja
TheFinancialNinja's picture

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

Thu, 05/10/2012 - 12:02 | 2413462 loveyajimbo
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...

Thu, 05/10/2012 - 12:05 | 2413475 DebtSlaveZombie
DebtSlaveZombie's picture

Soooo.... we buy gold here?  Or sell gold since the gold reserves of greece will be liquidated to pay off this bond.  Or gold reserves of whatever entity that holds the paper equivalent of the underlying asset that supposedly exists somewhere under an unnamed custodian with CDS attached that were sold to a secondary market that holds pension money and state retirement fund money for teachers in New York.  Sound confusing?  Yeah.  It was supposed to be.  The rabbit hole runs long and has many dead ends.  Who owns that debt?  Probably the same "wealth fund" that owns entire subdivisions of vacant, half finshed houses somewhere east of San Jose, CA, or whatever town north of Phoenix that still has a zip code and post office.  Default means nothing anymore.  I wanna see REAL price action.  Like... Spanish 10 bonds hitting 20% by dinner time tonight!!!!

Thu, 05/10/2012 - 12:06 | 2413480 Madcow
Madcow's picture

"Sorry folks, you all got tricked fair and square - and now its time to move on."


The primary funciton of the political class is now to trick people into believing in the future - so the bankers can take their money. 

Mercifully, the fraud will end once the West has collapsed into a sea of anarchy and cannibalism and ther is nothing left to steal. 

Thu, 05/10/2012 - 12:10 | 2413497 The Reich
The Reich's picture

5...4...3...2...1... mine

Thu, 05/10/2012 - 12:26 | 2413559 FrederickTheGreat
FrederickTheGreat's picture

Greece Will Get Another 5.2 Billion EUR Bailout Tranche From the EFSF

The Norwegians will get their money. Greece is a storm in a teacup.


Thu, 05/10/2012 - 12:34 | 2413597 Tyler Durden
Tyler Durden's picture

If you were to actually read the article, you might understand that it is not an issue of making the payment, but whether the payment is par or 22 cents of par. Because if Greece pays par in order to be in compliance with indenture and recognizing the hold-out class (of which there are billions more in maturities coming) everyone gets very, very pissed, including hundreds of billions in other bonds, as well as Greek taxpayers who gave up their pensions so that the country would "delever".

If Greece does not pay, it is default.

Get it now?

Thu, 05/10/2012 - 12:43 | 2413639 CrashisOptimistic
CrashisOptimistic's picture

A nitpick, TD, only because it matters.

If Greece does not pay, it is a missed payment.  Not a default.  There are no defaults.  The money remains owed.  They can refuse to pay, but the debt is never expunged without creditor agreement.  And if they refuse too long, they'll find a $1 / barrel surcharge on their oil imports, with that $1 making their payments.

Thu, 05/10/2012 - 12:55 | 2413688 machineh
machineh's picture

A 'missed payment' becomes a 'default' after a grace period, usually 30 days.

Thu, 05/10/2012 - 13:23 | 2413782 Joe The Plumber
Joe The Plumber's picture

By definition

Crash needs a finance dictionary.

Thu, 05/10/2012 - 14:04 | 2413965 CrashisOptimistic
CrashisOptimistic's picture

Nope, you don't understand.

Default on debt in a bankruptcy means expungement.

There is no expungement of sovereign debt because there is no bankruptcy court to do the expunging.

Missing a payment and missing another payment does not achieve default (where default is expungement).

I think we are all on the same page though.  You guys are presuming default can exist without expungement.  It can't.  Unless you want to invent a term "undefault", where payment resumes -- because without expungement, Greece WILL have to pay that debt, whether they miss payments or not.  They import 400K barrels per day.  Without that, they literally die.

So they can be made to pay, whether 30 days pass or not. 

Thu, 05/10/2012 - 15:02 | 2414209 tmosley
tmosley's picture

Miss a student loan payment and see if they label you as being in default whether or not you declare bankruptcy.

Default is a missed payment, and a missed payment is a default.  Bankruptcy has nothing do do with it, nor does expungement of the debt.  

Thu, 05/10/2012 - 13:30 | 2413806 Hippocratic Oaf
Hippocratic Oaf's picture

What fuckin Bonds 101 class did you take in college?

Miss a payment.........default


"The money remains owed"

Are you kidding me? Tell that to the underwriters of muni and corporate shit. They'll laugh at you and tell you to buy more!

Thu, 05/10/2012 - 13:23 | 2413777 Watson
Watson's picture

Wasn't there a coupon due on a Greek JPY bond a few days ago?
If there was (it was reported on Bloomberg) did it pay fully or scalped?


Thu, 05/10/2012 - 13:05 | 2413717 Joe The Plumber
Joe The Plumber's picture

God i hate these slow motion train wrecks. Greece needs to hurry up and fall into a black hole so we can next focus on spain and italy. Those are the real enchiladas

Thu, 05/10/2012 - 13:09 | 2413729 FrederickTheGreat
FrederickTheGreat's picture

Greece will recover if it steps out of the euro.

No black hole, a storm in a teacup. See Argentina. Not perfect, but better off.

Thu, 05/10/2012 - 13:25 | 2413789 Joe The Plumber
Joe The Plumber's picture

I hope they pull an iceland. They should have done it earlier before the economy was totally F'd up

Thu, 05/10/2012 - 14:40 | 2414116 earleflorida
earleflorida's picture

      The Greek's will go to the 'money-well', strategically off-centered next to their withering  money tree orchard, as long as there is but a single bucket worth of free euros left to be had. It's that simple, period! Thus, when such event occurs, mysterious opportunity arises. The land will spring forth of hand-dug drachma well's,... more than enough to sustain their free-market, non-asset and non-toxic, sorely missed and coveted, irrigated bartering system.

      Whoa is me,... oh why have we forsaken our elders with these false promises of freedom from the northwest, that has brought about such  fiscal carnage and unnecessary enslavement!  Oh why, great Zeus? 

     Thusly, the Gordian knot is shredded once and for all, by the immortal ghost of "Alexander the Great"!

Thu, 05/10/2012 - 15:47 | 2414377 iamtheeggman wh...
iamtheeggman whooooooooooooo's picture

Hat tip to ZH for the Euro coverage! Much appreciated.

Thu, 05/10/2012 - 16:11 | 2414444 xela2200
xela2200's picture

Bonds paying 40% interest. How can that go wrong? Nobody should invest in bonds if they don't understand the inverse relationship between yield and principal, or yield to call or yield to maturity.

Do NOT follow this link or you will be banned from the site!