Bid-to-Cover Only Part of the Story as Athens Pawnbrokers & Bookies Bid on Greek Bonds

Now that we can peel away from the “all Goldman, all the time” candlelight vigil, let’s get back to the Greek tragedy “As the Sovereign Enron Turns.”  When we last our heroine, we were seeing comments like this from last week:

The Greek short term bond issue (2 years) turned successful today and even managed to push the EUR a bit higher after the auction results were published. It was a good test for Greek, which turned out investors are still confident of the Greek ability to over come its debts problems in the short term.

via Bond Auction Fail to Boost Euro, Crude Oil above $83.

And then there was this, which was more balanced:

Euro could not hold the 1.3600 level after a relatively strong Greek Treasury bill auction of 6 and 9 month paper that resulted in a yield of 4.9% versus estimates of 6%. While demand was strong, with the bid to cover ratio very strong 6.5, today’s rates are almost 300bp higher than the same auction 6 months ago and highlight the difficulty Greece faces as it tries to finance its budget deficits.

via FOREX, COMMODITIES, STOCKS OUTLOOK April 13th: Analysis, Events, Trends 11:15 GMT.

As well as this one from earlier this week:

ATHENS, April 20 (Reuters) – Greece comfortably covered a sale of 3-month T-bills on Tuesday, raising 1.95 billion euros ($2.63 billion) to fund maturing short-term paper but had to pay twice as much in yield compared to a previous auction in January.

via UPDATE 1-Greek T-bill sale oversubscribed, pays higher rate | Reuters.

Throughout those auctions, the bid-to-cover ratio was particularly high and it was often cited as a statistic which pointed to strength in the Greek bond auctions.

Really…

If that were true, why did the Greek business website Banking News post this?  I translated it via Google Translate, and while the translation is tortured, you should be able to get the main idea:

50% of the bids are fictitious?  I don’t think so.  It sounds more like this is a case where a significant number of the bidders are trying to buy Greek debt on the cheap – like bookies & pawnbrokers would.  Only in this case they’re masquerading as banks.  My point is this: bid-to-cover is only one metric and it only tells part of the picture of a bond auction.  Especially if there is tremendous dispersion amongst the bids, and it sounds like these auctions have wide dispersion.  Needless to say, these aren’t 10yr US Treasury auctions in terms of bidding action.

But the question I have is this: who’s submitting the winning bids?

Meanwhile, all this has done in the currency market is break the channel the Euro was slip, sliding its way down:

The 50 day EMA has rolled over and is now beneath the 100 day EMA.  But the bigger picture dynamic stays the same: the 50 day EMA is acting as resistance on the daily chart, so for longer term directional trading, Euro weakness definitely remains the way to play this.

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