Greek 2-year bond yield rises above 13 per cent

Posted on | lunes, 26 de abril de 2010 | No Comments

Posted by Izabella Kaminska on Apr 26 10:49.

Greek bond yields were moving higher on Monday, despite the country’s activation of an EU/IMF aid package on Friday.

From Reuters:

RTRS – GREEK/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD RISES TO 663 BPS, HIGHEST SINCE FEB 1998

RTRS-GREEK 2-YEAR GOVERNMENT BOND YIELD RISES ABOVE 13 PERCENT FROM NEAR 11 PCT AT FRIDAY’S CLOSE – TRADEWEB

And here’s the graph of Greek two-year bond yields:



The moves possibly signifiy that investors believe Greece will be pushed into some sort of debt restructuring in the near term.

They could also be linked to comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece.

Traders though remind Greek CDS and bond trading has now become very illiquid.

A report from Citi’s Luis Costa notes, for example (our emphasis):

…the underperformance of short-term (up to 3-years) bond versus longer-duration bonds highlights the fact that the market is pricing higher likelihood of a short-term debt restructuring. If that materialises, possible bond haircut is poised to be the main source of losses in the investment community, much larger than CDS related losses.

According to the DTCC data, there is only US$9bn worth of sovereign Greek CDS outstanding in the market, compared to a bond outstanding amount above US$400bn. In other words, CDS is probably not the best (or most accurate) indicator for Greek risk in the current crisis. Relative moves short vs. long duration bonds in the GGB curve are probably much better barometers of market risk perception.

Even if the EU/IMF materialises (sooner or later we believe it will), the risk of a liability management deal in the short-term portion of the Greek government debt is still material. Any benchmarking exercise using EM sovereign entities suggests large potential losses to the investment community.

On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.

Portuguese 10-year bond yields, meanwhile, were trading at above 5 per cent, for the first time since the summer of 2008.

This entry was posted by Izabella Kaminska on Monday, April 26th, 2010 at 10:49 and is filed under Capital markets. Tagged with bonds, ecb, Greece, IMF. Edit this entry.

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