With the Greek government bonds (GGBs) and CDS basis package trading at its highest in six months (over 96% of Par) and GGBs trading below 20% of Par (compared to considerably higher 'expected' PSI-based valuations), it seems the market is much more convinced of an imminent credit trigger and no PSI deal than headlines are crowing about. Combining the new 30Y bond, 2Y EFSF add-on, and GDP warrant, BARCAP arrives at a price of around 26.6% of Par for PSI-able bonds - considerably above the current depressed price of GGBs and together with S&P's negative outlook change to the EFSF this morning, it would appear that market participants are not expecting a deal to get done by March 20th. Perhaps that is why hope is so high this morning for a quadrillion Euro LTRO2 to see them through? That should help oil prices!
The Greek Bond-CDS package - that theoretically pays off par if a credit event is triggered - is trading at its highest in six months - and given the yields/spreads involved, the March 20th maturity of the closest bond AND the fact that this date is also a CDS rollover date, suggests market participants are expecting an 'event' before this (retro CACs?). The closer the value of the basis package gets to 100, the higher probability and/or sooner the credit event is expected to be.
[5]
GGBs trade well below the implied PSI valuations levels - implying very little belief in the deal being done as it stands - even with accrueds being paid in full.
[6]
BARCAP has created some proxy valuations based on the combined value of the new 30Y GGB, the 2Y EFSF bill, and the GDP warrants. As is clear - the valuations are notably above market (27-9% versus market average of 22%) and yet buyers are not reappearing.
[7]
It would appear that GGBs remain very much the bull-dog in the European china-shop and while hope remains high for the PSI deal to be done, market prices do not reflect this hope.