How Much Is That Greek Doggy Worth In The PSI Window?
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.
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.
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.
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.
and......
Did Nowotny Just Take The Market's Punchbowl Away?
It should come as no surprise to readers as it has been long pointed out that the need (and expectation) for all "transitory" measures to become permanent and exponentially larger to maintain this mirage of sustainability, but comments from ECB's Nowotny just took the shine off the day as Gold, Oil, Financials, ES, and AAPL all dropped notably (pulling back to TSY's outperformance) as he strongly suggested this is it (via Bloomberg)...
- NOWOTNY SAYS SMP IS MORE OR LESS ON HOLD
- NOWOTNY SAYS 3-YEAR LOANS WILL NOT BECOME A REGULAR FEATURE
- NOWOTNY SAYS NOT `CONVINCED' ABOUT CASE FOR HIGHER FIREWALL
- NOWOTNY SAYS ECB HAS PROBLEM OF ADDICTED BANKS
Well of course it does, only instead of even contemplating methadone, the ECB keeps pumping banks to the gills full of heroin. Certainly the ending will be a happy one. What is notable is that the only thing the sham formerly known as the market even bothers to react to are promises of future liquidity or lack thereof.
and.....
Guest Post: The Trajectory Of Tragedy
From Mark J. Grant author of "Out of the Box and into Wall Street"
One More Greek Tragedy
“The end crowns all, and that old common arbitrator, Time, will one day end it.”
-William Shakespeare, Troilus and Cressida
We are approaching an endgame, March 20 will mark the spot on your calendar, and while it is certainly not “the” endgame; it is one of the continuum. During the next twenty-three days we are going to get some answers to a number of questions that have been unanswered and a number of verdicts that will set the stage for the performance. In the end I suspect there is going to be a decision made by Germany whether to fund the Greek bond payment independently of everything else or just to let them go and destroy the grand myth. Germany will probably end up playing chicken with itself in an exceedingly bizarre pact with the Devil. In the first instance there is more and more evidence that the PSI will not go as hoped as many institutional investors do not take the bait and are not willing to roll-over for the good of Greece and Europe. Each time I hear some European politician speak about the obligations of money managers I am reminded that these people live far off the beaten path of reality. Somehow the “responsibility to shareholders,” so prevalent in other conversations, finds itself left out in the woodshed when speaking about the Greek bailout. The boys speak from both sides of their mouths which is a common trick amongst these rascals and one that I have never attempted though they seem to have it down pat. Forbearance and fealty depend upon the subject at hand and Greece demands one covenant while corporate jurisprudence demands another. The often intoned phrase for bondholders, that this is the one and only time we will get spanked, rings with all of the truth of the Trojans proclaiming that they “Come in peace.” A horse tale history has taught us.
Aside from everything else the trick pony may well turn on a PSI deal that does not get accomplished and no time left to fix it. Consider the implications of a failed deal where Greece is over one hundred billion short and no time available to head back to all of the Parliaments to try to increase the bailout one more time. Realization may well turn to European panic and wails of desperation heard long into the night. I have discussed the “Collective Action Clause” and the CDS trigger or not but what if the transaction just does not get done as 26% or more of the bond holders choose not to participate for whatever reasons. This scenario is looking increasingly likely and should be seriously contemplated now.
April 22 and “Vive La Difference”
Here we have the first French election with May 6 behind it for the run-off if needed. The man who would be Napoleon will end up swinging from the gates at the Bastille it appears. Sarkozy is not Bonaparte and the present ruler is about to be forced from the palace. To put it in perspective, what is about to occur is exactly like the American elections if the majority and the Presidency went to the Republicans; a total reversal in social policy and direction. There may be some wrong or right to it but I do not speak to those issues this morning but rather a recognition that reversal is coming. Besides the fallout for the French banks, evil-doers in Hollande’s assessment, the clawing and scratching between Germany and France is about to get ferocious. This will then have a marked impact on the direction of the European Union with Germany wanting to go right as the French turn to the left. I continue to think that one of the best shorts is France currently; bonds, equities, brie futures, the Chanel #5 June contracts, Victor Hugo memorabilia, Marie Antoinette tarts, room nights at the George V and Hermes scarves July contracts.
The German Dilemma
With an economy of just $3.2Tn versus the United States $14.3Tn Germany is trying to prop up a Eurozone that is more than one trillion dollars bigger than America. They just do not have the resources for the task they are undertaking and I predict serious consequences, eventually, from their efforts. Germany is “best of class” and will be the last to go but they cannot evade the European recession in the end and I think it is only a matter of time and unfortunate decisions before the austerity demands made on so many will wind their way back home to those who made the demands. They used a timeline that was much too short for the job at hand and payment will eventually be forced upon them. They obviously get the joke where Eurobonds and other ploys of this nature average the economies of Europe and the standards of living over some period of time so that Germany, in the end, will suffer most as they have the furthest to fall. They have approached the G-20, China, the emerging market countries and all polite responses to the side; the results have been about zip. The Germans are running out of both time and money and Franz is squirming in the beer hall.
One more Lowenbrau please!
No comments:
Post a Comment