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Trading Greece After The PSI
While anyone (as we did) with an abacus and five-minutes of spare time from hitting the buy-button could have figured out that post-PSI 'new' GGBs would trade down hard, it is perhaps worth looking at some sensitivity analysis on both the shape of the Greek curve and the level (as well as the value of GDP warrants) before jumping on any bid from BNP in the grey. Of course, excitement over 80-90% participation rate rumors are somewhat irrelevant as CACs are as inevitable as hearing the phrase 'money-on-the-sidelines' on CNBC every day and whether its 77% or 97% is largely irrelevant - despite our equity market's ebullience. Morgan Stanley provides some color on the new GGBs, which they expect to trade at least 200bps wide of Portugal and with an inverted curve expecting prices to stabilize in the mid-20s (with technicals in the short-term pushing prices below 20). The GDP warrants are estimated at a fair-value around 1c and if the Argentine framework is any evidence, this will be heavily discounted (read ignored) by the market. All-in-all, not exactly positive but still buy stocks because 90% sounds like a good number!
Morgan Stanley: Greek Bond Market in Transition
Awaiting the final results and assuming a successful PSI, up to €65bn of new Greek bonds could appear in the market with average maturity substantially extended from around 7 years to 20 years.
Yields Likely to Remain Elevated…
Given that the Greek debt trajectory will remain challenging even after the PSI, we think that 20-year yields may range between 13-17% in the medium term.
…Even More So in the Near Term
However, we do not rule out bond prices dropping below 20 cents in the near term. In addition to immediate risks related to the elections and ongoing programme compliance, a supply shock could materialize. With lack of benchmark driven sponsorship and an ongoing structural shift in the natural investor base, supply/demand may find a near-term balance at an elevated yield.
GDP Warrant: How Attractive?
The structure of the Greek GDP-linked security is designed to limit the contingent liability for Greece that could arise from future payout. Our model estimates a fair value around 1 cent.
Putting It Altogether:
Material changes in the bond universe are likely to cause near-term shocks: A successful PSI would change completely the main features of the bond universe. About €56bn of old GGBs will remain, as a result of the bilateral bond exchange between ECB, NCBs and EIB and Greece; however those bonds are unlikely to trade in the open markets any time soon. Investors positioning and investment behaviour will most likely be affected by the sharp increase of average maturity of the Greek debt (i.e., from about 7- to 20-year) and by the fact that while the front-end may virtually disappear, the floating outstanding in the 10-30 year sector is set to stay stable at about €60bn.
Scarce initial marginal bid: As Greek debt is likely to stay out of the main DM and EM indices and the current shift in the natural investor base toward EM investors looks set to continue, a solid marginal bid may only appear at elevated yields. We see this as a major difference compared to prior EM restructurings, where benchmark driven sponsorship was available.
Absent any political and fundamental negative surprises, we think, bond prices may stabilize in the mid-20s in the medium term. However, near term adverse technicals are likely to push bond prices towards or even below 20 cents.
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bullshit
Your spelling is atrocious, bgilliam83.
It's spelled "b-u-l-l-i-s-h".
Add this to the non-farm payroll report tomorrow - either good ("The RecoveryTM is firming!") or bad ("Ben will give us QE4!) - the S&P should approach 1400 by the end of the day.
thanks for humoring me, but any extrapolations 20 years into the future is complete and utter BULL SHIT. FAIL
Head for the Hill.. the hollywood hills - http://hedge.ly/gFWVSm
90% was always a A- in class. BULLISH
Fresh out of abacus...knew I was missing someting
btw - also seems everyone forgot to trade the "market" today as volume was volumeless...almost like a thin "market" is easier to levitate than an active one?!?
Oh it is, a thin market is very easy to move than one that is heavy in volume. Because it takes less energy and less resources.
Worthless
Who in their right or wrong mind would want anything to do with Greece or the rest of Europe or bonds or anything after all this crap. Let's see buy bonds from GM they change the rules, buy bonds from Greece they change the rules.
I wish I had the nerve to acrue debt to my eyeballs and then give everyone the middle finger and not pay it.
Paper, for paper, for paper, ad nauseum.
Can't ramp these markets unless "daBoyz" let the metals run.
Exactly. Watch this:
Portugal is 6 months away from this happening!!! Which is why flight is immenent after the way the Troika handled this abortion.
(Im making a shadow bird...visuals never work here)
i'm tired, show me the way to the next whisky bar
May I ask why?
It's all Bullshit! Rally on!
All-in-all, not exactly positive but still buy stocks because 90% sounds like a good number!
holy shit...what??
I'm going long Greek donkey carts.
i'm long Molotov Cocktails and builders specialised in erecting torched bank outlets
its all just make believe
Pure fucking insanity. Swapping worthless bonds for worthless bonds. And let's not forget that this entire charade does absolutely nothing (positive) for the people of Greece. This is truly a version of 3 card monte.
90% is a great number!
when 90% of the ladies reject you, you're still batting 1.000!
The STOLPER Effect!
GET IN THERE LADS
the ECB are going to float this yoghurt tanker on a sea of funny money and it's all back-stopped by the German taxpayer
No Risk whatsoever, All Upside ...'Bombs Away'
Ahhh, that's old news now. Texas Instruments' miss, on the other hand......................................
Greece cannot devalue the EURO, they can't touch their Drachma, they can't even get an Obama 'inflation' driven credit crack up boom (cars and students loans...what a guy).
So, Greek bond yields will be forced down by a cartel of European nut-cases, Greece will be perpetually in a depression. All the while the ECB will stop at nothing to keep the EUR bid. Till the other PIIGS implode, then short EUR - inflation hits like an atom bomb, bonds tank, yields climb. The end of the EU
They bought a tiny amount of time. A month or so tops. Rallies rangy with oil capping gains. Markets look thin and tight.
Very much like 1929. Bubbles, pop. Bubbles, pop. Bubbbble Poppppp. Then summer rolled around. repeat ad nauseum, then it fell in the fall.
Goodness gracious ! How many of those massive yield payments do think anyone is going to get? Good luck trying to unload those hot potatoes when they turn into " U-238"!
Can somebody answer me why they think Greece would be allowed to activate CAC since doing so would mean CDS trigger, which means [insert your imaginations].
Is it reasonable to think that those holdouts will somehow get paid at/close to par via some other channels so that they really voluntarily participate? (because they will be, or are already refunded privately)
You're over thinking the process. Read this. It will answer all your Q/A http://www.forexlive.com/blog/2012/03/08/there-is-nothing-magic-about-90/
I thought the same thing kalasend. Just buy them off pn the side, especially with the stakes this high.
zerohedge, you guys are my gods. great post again.
Oh sigh; and all was supposed to blow up today. No default on the 20th, no fireworks? I guess the world isn't going to end after all. BOO!
If it is a credit event and CDS get triggered next week, then maybe. Jamie Dimon thinks we're insulated....
What are you saying? That there are no repercussions for this kind of manipulation? There are still some absolute truths out there...relativist attitudes/actions about what is going on will not correct this course.
Will any naked CDS contracts payout in the event of a credit event?