The Greek Bond Saga

This page carries market updates and news articles relevant to the Greek Bond saga. "Lisence to Thrill" is an ongoing theme.
my name is Bond, Greek Bond

"License to Thrill"

Update Mar. 16, 2015 - Political Risk + Risk of Grexit = Risk of Grexident

Today's relative and absolute risk, as measured by the spread of the Greek bond yields Vs EZ peers' (and not only the German bund) is peaking. In absolute terms, it's only comparable to August-September 2012. In relative terms, it has never been higher.


Update Mar. 12, 2015 - Another day in paradise! My gauge for the relative risk priced into Greek bond yields (10 year) relative to selected EZ countries and former PII(G)S has reached a new local high! According to this gauge (the Model), the Greek 10 Year should be 845 basis points (or 8.45%) lower at ca. 2% Vs 10.45% today. This difference is explained by the risk of "Grexit" or "Greccident" priced in by investors (the markets). The Greek yield curve is un sustainably elevated and sice last November inverse indicating the the risk of a "event" is in front of us and not in a distance.


Update Mar. 06, 2015 - There is a story to be told. Greece had been on a convergence path to normalcy. This trip was interupted last summer. By end of fall 2014, it was confirmed that Political Risk, related to Greek Elections, was back and it was serious. By now, the risk of Grexit has never been higher. That's what the figures say! That's what prices dictate. So, the Greek Government may say one thing (or something) but markets think another! Who's right? Well if the Greek Government is right then the Greek yield curve is misspriced and that may be an opportunity. But if markets are right, well ... I don't want to talk about it.

The current situation in the Greek yield curve is unsustainable. Given that the new Greek Governmet does not seak a new programme (funding), the only probable outcome is a Grexident (a Grexit by accident) that will follow a "default" or a credit event to be more politicaly correct. 


Update Dec. 30, 2014 - Well, we didn't plan this, most of us at least. But who plans accidents? In retrospect, this was another one waiting to happen but I was hoping we could avoid it, because this time it would be different! But it wasn't!
The 10 year Greek bond yields are over 9.50% while the 3Y issued last summer is now “trading” at 12.84%! These are not rates to fund an EZ country with a primary surplus and a current account surplus. Actually, they are not even rates to fund a frontier economy too.
Political risk? Yes, that it was at the beginning. However, now it is the Ghost of Xmas Future, the Drachma.
I don't know how things will evolve. It is the General Elections on January 25th that will greatly decide the matter. Yet again, we may have to go through a second round if no government can be formed by February. By that time, it may well be unrecoverable! Although a credit event is not yet in the cards, as most of the obligations maturing next year are not marketable securities, the real risk is a run to the bank. Banks can technically absorb a large withdrawal but will the Eurosystem stand by? That is the question.
Have a happy new year.



Update Dec. 12, 2014 - The Greek yield curve has inverted. This has materialized over the past four days since the announcement of the initiation of the Presidential election (a parliamentary process brought forward by almost two months) that could lead to early General Elections if no 2/3 majority is reached (180 MPs by Dec 29th, the third vote).

The rest of the periphery, the infamous PIIGS, has remained more or less unaffected by the recent surge in Greek Political Risk. A trend evident since last summer but now it’s clear. Greece stands alone in this.

ASE index having lost over 20% in the past three days is finding an inflection point.


Update November 11th 2014 - After two months of uncertainty, I think we can call it an accident! The Greek-yield/spread convergence is postponed until after the elections, now seem almost inevitable. The Troika has finally shown some political instincts, as markets have already done that since last summer, so the deadlock in the discussions. This does not alleviate the responsibility of the Greek government to lead the country out of its misery  And so far it has failed to do so decisively. In its attempt to stop the "galluping" lead of the leftish opposition it has fallen in the populist trap of declaring the end-of-the-memorandum. However, it's not over till is over and European politicians conscious of the political developments in Greece, have probably decided to wait untill the situation has settled down; thus the stallemate.


Update Sep. 11, 2014. After months of continuous decline, the Greek 10Yr yield and even more so spread over Bunds has stagnated, losing traction with the rest of the EZ and periphery. This, as captured by my empirical model, has created a premium of ca. 150 basis points over where it should have been trading. This, if not a temporary glitch, may be better explained as a new Greek Risk being born, probably related to the political uncertainty and the concurrent ending of the Troika led programme.

The programme and its memorandum of understanding have become the center piece of a heated political debate with the opposition gaining ground, calling for a reversal of restrictive policies, proliferating a larger welfare state. Although such claims can be understood as part of an "undeclared" early Election campaign (due to the coming Presidential Election possible stalemate in the parliament - 180 out of 300 MPs required) they lack credibility and cannot be implemented due to public funding limitations.

None the less, and although the economy is doing better than forecasted, the recovery on sight is fragile and quite one-sided too (tourism-services). It is, to the detriment of the Northern-voter-minded-politicians, much less based on export of goods growth (a so proclaimed gain in competitiveness) as both the agricultural sector (primary) and the manufacturing sector (secondary) are unable to increase their production levels, facing significant pressures from increased tax burdens, insufficient liquidity and luck of funding (weak banking sector) and from a decline in demand and a severe price deflation in the domestic markets.

Yet, this rising premium should be treated, imho, as a medium-term opportunity because no matter the specifics, the fiscal and trade accounts imbalance has been corrected and a forthcoming debt relief will help establish the long awaited, debt sustainability.

The Greek Curve 


Appendix. Evolution of modeled Vs actual Greek 10Yr spread (in logarithmic scale)

Update April 28, 2014. The Greek Yield Curve

Update April 11, 2014. The day after.
Four years after the issue of the last Greek sovereign bond (before PSI), the country tapped the markets (as I have been anticipating) with a 5 year, 4.75% fixed coupon, UK Law Note. That is remarkable by all means considering the type and size of restructuring it has undergone, only two years ago. Asking to raise 2.5 bn Euros, Greece was offered 20 bn at 4.95%, both biting all expectations and even mine. A few months after Portugal and less than a year after Ireland, Greece was offered 8 times the amount asked at a level competitive to its pre-crisis levels (2009), albeit expensive relative to other "PIIGS".
That said, it is by all means not a declaration of "all ok" or «Όλα Καλά» in Greek. There is much to be done. None the less, this is a welcoming ceremony back to land of the living. No more zomby-land.
The future of the “The Greek Bond Saga” will be less straight-forward and much more EZ-normal. Still we need a few more milestones to help us shape a proper yield curve. Here is how I expect it to look like:

Update April 3, 2014. The train has arrived to Tipperary. The 10 Year yield is back to early 2010 levels with the spread (over the German 10Yr) fast approaching the 400 reasonable re-entry level (currently at 450). The 10Y yield is at ca. 6.10%.
The Greek Government has announced it's intention to tap the markets with 2-5 bn in 3 and 5 year tenors. The market has jumped another 50 bps since. Looking forward to the newborn Greek Bond!

Update March 6, 2014 - The spread is fast approaching the 500 level (currently at 505). The 10Y yield is 6.67%.
A five year bond could be priced at ca. 5.50/60% (+200bps Vs Portugal's current 3.52%)


Feb 28, 2014 – The GGB 10YR yield is now well below 7%. We are approaching "Tipperary". Cabin crew prepare for landing.

It’s not unique but it’s either a step ahead of the herd or a premature move on the basis of the following scenario.

Under my base case scenario, the republic is going to move with a 5Y issue (5bn) before the May repayments of ECB held bonds. This move will be a political marketing tool to demonstrate the success of the Program (win-win for all parties involved). The funding requirements from 2014 onwards are limited (because of the Program) thus there is no rush for a full-fledged borrowing schedule. Any rate above the current funding (by the Troika) is not an economical sound decision. That said, market access is a gain on its own and thus may justify the increased cost (one-off).

Markets seem to be moving along such a reasonable assumption. To my mind, we are entering uncharted territories.

Update Jan 8, 2014 – The trend is your friend as spreads are making new post crisis lows. The GGB 10YR yield is now well below 8%. Although it is still "a long way to Tipperary" that fact remains that the new-convergence in periphery yields is gaining momentum. Improved economic fundamentals and market conditions render an early (first after 2010) Greek-bond issuance all the more possible.
"Opt. Greek Spread" is a gauge of relative (Vs EU & Periphery) Greek spread (ex post).

Oct 22nd – The trend is your friend as the spreads are making new lows. The 10YR yield is now approaching 8%. "It's a long way to Tipperary, it's a long, long way to go."

Oct 11th - GREcovery: a return to the markets? Well, not quite yet. The Greek 10Year yield is now trading at below 9% ... A second instance since last May and after three years of double digits (distressed levels).
Another 500 basis points and we start gazing at a more-or-less decent return to the markets ... !
Still that will be greater than the current debt servicing cost but what the heck!

Oct 7th - Greek Bond Saga: A new plan will reportedly focus on making the notorius Greek Debt a servisable quantity, not by affecting its quantity (nominal value) but rather its term-structure and ownership. A return to the markets, marks "Episode II" of the Saga (the Return of the Jedi). Another Way 2Look@Greece will follow and narate this new Episode. See you at the movies and may the force be with you!

Are GGBs a BUY? Update 04/06/2013 09:45 (CET+1)

The Greek bond market, (as measured by the 10Yr spread Vs Germany's – the blue line) is approaching a level where trends established over the past 15 months will have run their course. I suspect that level could be reached by late summer -the latest- and it would measure around 500bps over 10Yr German, slightly above Portugal, currently around +400bps. The trend range mid line decreases by 4.25 bps per calendar day. The upper and lower limit lines have been established over the same period. The upper line (drawn from points 1, 3, 4) has been tested twice over the past few months (orange arrows) and is being challenged yet again today. The lower line (drawn from points 2, 5) has been roughly tested once.

The Green line is an index designed to establish a fair level for the Greek 10Yr spread, derived from the equivalent (10Yr) spreads observed in the other PIIGS, as well as a few selected EZ member states. The approach used is heuristic but seems to be explaining the market’s risk aversion towards Greek risk. The deviation observed, measured by the brownish-red area, coincides with the rise and fall of “Grexit” risk and thus I have named it the Grexit premium (negative indicates a discount). According to this index, any further decline in Greek rates is closely tied to developments in the other PIIGS and the EZ but dominantly in Italy and Spain.

Currently the “signal” from the first paragraph analysis is a buy with a target gain of ca. 250 bps (spread) by midsummer. But the Green line applies a negative gravitation force (pulling the spreads up). Thus, I favor a cautious BUY in the GGBs as long as the 10Yr spread does not trade above the upper line. (today at 790bps, decreasing by ca. 5.75 bps per calendar day).

Currently, the GGB10Yr spread is at 772.


 May 14 (Bloomberg) -- S-T FC IDR raised to B from C, country ceiling raised to B from B-. L-T IDR outlook stable.
  • Cites Greek economy “rebalancing,” progress made toward eliminating twin fiscal and current account deficits, says “internal devaluation” has begun to take hold
  • Says capacity for recovery still in doubt
  • Says risk of eurozone exit has reced
  • Fitch sees economic contraction of 4.2% in 2013, weak recovery in 2014

More from Wall St.:
Greece’s sovereign ratings are underpinned by its still high income per capita. Today’s rating report said, “The Greek economy is rebalancing: clear progress has been made towards eliminating twin fiscal and current account deficits and ‘internal devaluation’ has at last begun to take hold. The price has been high in terms of lost output and rising unemployment and the capacity for recovery is still in doubt. Nonetheless, sovereign debt relief and an easing of fiscal targets have lifted Central Bank measures of economic sentiment to a three-year high and the risk of eurozone exit has receded.”

Read more: A Rare Credit Rating Upgrade For Greece, The Impossible Comes True - 24/7 Wall St.

Update 09/04/2013 - GGB Spread (10Y) is on a convergence run along with the rest of the periphery. With the successful Portuguese tapping of the markets, following a similar exercise done by Ireland, confidence is improving. The positive response of the Troika, IMF in particular, regarding the Greek government's accomplishments both in the budget deficit and most importantly in the current account is like saying that Greece is on the right path for rejoining markets (likely within the next 12 months). Market players such as Goldman Sachs and Morgan Stanley are playing along the same tune. That can be translated into vast capital gains in the very thin Greek bond market (after PSI and debt buyback).

Update 09/04/2013 - GGB Spread (10Y) has started dropping again as periphery as a whole is adjusting to the new "Cyprus" doctrine for bank rescues. "No more taxpayers money", shout the Euro-officials in a new message that sounds like it was said by the late Baroness Thatcher (1925-2013).

Update 19/03/2013 - GGB Spread (10Y) is rising as periphery is set to suffer from uncertainty due to the Cyprus deposit Levy (not yet concluded at this time)

Update 07/02/2013 - GGB Spread (10Y) may temporarily rise in line with other EZ rates

Update 28/01/2013 - GGB Spread (10Y) is fair price at current levels

“Grexit” has been completely priced off, IMHO. Current levels suggest 500bps over Portugal but this will eventually subside when Spain/Italy fears further subside themselves.

Currently the spread over German 10Year bond is ca. 850bps and the yield is scratching the 10% barrier! I wouldn't be surprised if the Greek Government would test the markets much sooner than currently anticipated, provided a successful programme implementation!

The Greek Spread to Bund (10Y) - 19/12/2012

UPDATE (19/12/2012)

The Price of the 10Y GGB 02/24/23, has moved from 31.75 (Oct 17th) to 46.72 (Dec 19th) thus +47.1% in two months! Not bad for an unleveraged trade! 

Yield: 12.35% (new Low)

UPDATE (10/12/2012)The Greek buyback gets a short term extension to 12/12/12. Bloomberg reported, "Greece was near its target in the buyback with the amount offered close to 30 billion euros, an official at the Greek Finance Ministry said yesterday referring to the face value of the securities."

Meanwhile prices sore pushing the yield further south.

Update #2 (10/12/2012 16:20 CET+1)
Yield: 13.58% (new Low) 

UPDATE (5/12/2012)The move that started by mid July has probably reached a level that supported by the recent buy-back initiative could act as a pivot, in the short-term. However, the recent developments in the Greek saga support the further gradual rerating of Greek Risk. Thus the next 500 to 1000 basis points should bring Greece within the EZ neck of the woods.

UPDATE (22/11/2012)The recent Eurogroup (Nov. 20th) came short from producing a clear decision on the Greek Programme's funding. However, during the meeting it was clear that Germany is pushing through some kind of buyback initiative. This has resulted to the following: 
a) a clear bottom has formed around 25 (price level for the strip) and the potential upside due to the initiative could  be as high as 40-50. However, the 10Y already trades higher than the strip (average price of the exchanged bonds from PSI).
b) a market has been created as now speculators and long investors have a price level to negotiate.

It is natural for the curve to flatten around a potential buy-back level. However, the dynamic of the move is still very powerful.


Original Post (17/10/2012)
If current move continues, based on a Fibonacci retracement level (61.8%) the 10 Year GGB (above) may yield as low as 14.40% by mid November. <GTGRD10Y Govt>
Chart includes the 10-Year comparable from Portugal, Spain and Italy.

HELLENIC REPUBLIC GGB 2 02/24/23     31.4650/32.1650 (mid 31.83) YieldTM (17.58/17.27)
BGN  @10:16, 17/10/2012


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