- Why anyone would want to invest in Greek bonds is beyond me. It is a guaranteed loss making enterprise!
Greek “Fresh Start” Bonds Face Immediate 80% Loss, 98% Probability Of Redefault !
by Tyler Durden, http://www.zerohedge.com/
As ‘news’ breaks of over 80% participation in the Greek PSI deal and the apparent optimism that this is somehow a good thing, we note that our analysis of what would happen from two months ago was exactly spot on. As the FT reports, “financial markets were already betting Greece would default again in the future. Grey market “when issued” pricing for the 20 new bonds were ranging from 17 to 28 cents on the euro, a highly distressed level, according to indicative quotes”, which just happens to almost perfectly coincide with our view:
“since the Greek Debt/GDP will still be over 120% according to another set of rumors (after all, only a small portion of the country’s debt is really getting impaired), it is 100% safe to say that in 30 years Greece will still go bankrupt. So let’s say it deserves a comparable yield to its current 30 year bonds, which are priced to yield about 23%. We are being a little generous and estimate the fresh start bonds will yield 20% post break. Which means that according to a generic bond yield calc, the price on the fresh start bonds post reorg will be… 17.9 cents of par, or immediate losses of over 80% the second these bonds break for trading from par.”
Simply put, as soon as these ‘new’ bonds hit the secondary market they will reprice from ‘par’ down to around 20 cents as expectations of default sooner rather than later (and with 98% inevitability given grey market CDS and bond pricing) leave Greek bondholders with more losses to come and the Greek people inevitably facing tougher austerity to get the next PSI deal through in perhaps six months to a year…
Furthermore, for those looking at the trend of participation news today and expecting it to rise any further, just as we have noted before many times, the FT confirms:
… for more click here!