With Keystone Cop Committment In Hand, Greece Tosses Flaming Bag in Form of 7yr Bonds

Well, that didn’t take long…

ATHENS — Greece on Monday took five billion euros with a seven-year bond just days after being thrown an EU lifeline to help resolve its unprecedented debt crisis but analysts noted timid demand for the offer.

via AFP: Greece five-billion-euro bond release meets timid demand.

Fresh off of an agreement that involves the Euroland, the IMF, and practically half of the civilized world, Greece decided to see if they could catch a bid on €5bn in 7yr bonds.

Turns out the bid they caught was modest, and probably to the chagrin of finance ministers that border the Mediterranean, pricing barely budged since the Friday announcement of the agreement.  From the article:

The Greek debt management agency said it had offered a coupon rate of 5.90 percent on the five-billion-euro (6.7-billion-dollar) bond with an issue price of 99.428, adding that the yield difference over German bond mid-swaps was 310 basis points.

So the pricing for the issue is right about where it was before the past week.  The announcement didn’t move the needle in terms of sentiment. In case you were wondering what Greece expected to pay in funding costs, look at this clip from the WSJ:

But the spread, or the gap between Greek government bond yields and the benchmark German government bond yield, hasn’t narrowed as far as the Greek government would like. Greece will be paying 3.34 percentage points above what Germany pays to borrow money in the same maturity on the new bond; earlier this month, Greek officials indicated that ideally they would like to pay no more than two percentage points above Germany.

Two points?  Above Germany?  So they think the market has mispriced them by about 130bps over what they think they should pay.  Sounds like the subprime home owner that wanted to pay a prime credit spread even though they’ve been 60 days late on their car loan three times in the past year, they owe back property taxes, and have a handful of things that have been handed over to collectors which they say they are “disputing.”  Just like people in hell wanting ice water, I don’t think anyone will be willing to give up 100bps in yield to Greece.

I’ve said throughout this Greek dramedy (part drama, part comedy, all Greek) the thing I was going to be keeping my eye on was the the Euro.  Simply because the EU members are in a monetary union that requires all of them to use the Euro.  So here’s my latest and greatest daily chart:

Looks like the channel is still unbroken, so there’s no point in changing sentiment on the Euro, in spite of the seeming desire to test the upper bound of the channel and possibly break out.  It won’t happen?

Why?  Because the Greeks still need to raise €15.5bn by the end of May, and a  total of €53bn by year end.  I haven’t even included Portugal, Spain, Italy and the Belgians that need to roll debt this year.

Seems like a lot of elephants are trying to pass through a tiny keyhole right now, we’ll see who makes it and how well they fare in the coming months…

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2 Comments

Filed under finance, government, International, macro, Markets

2 responses to “With Keystone Cop Committment In Hand, Greece Tosses Flaming Bag in Form of 7yr Bonds

  1. jm

    Professeur:

    Maybe governments should trust the information content of markets, and default the exact instant their CDS curve inverts.

    Seems trudging through only makes the inevitable interest burden more pricey when default does happen.

    • jm, It’s funny you mention that. If it worked that way, you’d use CDS quotes/CDS spreads to risk-free swaps as a ‘tell’ to indicate who is most likely to do a ‘strategic default.’ Kind of like an underwater borrower would do with their real estate loans – just hand the keys over.

      But you’re right. The interest burden is a slow-building stranglehold. You can still breathe now, but 5 minutes later you’re passed out due to asphyxiation.

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