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Greece: Bonds again
  • Vitaliy_KiselevVitaliy_Kiselev
    image

    60% for one year bonds :-)
  • 9 Replies sorted by
  • GOODEMPIREGOODEMPIRE
    could you clarify what do you make of that?
  • Vitaliy_KiselevVitaliy_Kiselev
    >could you clarify what do you make of that?

    It's The End Of The World As We Know It (c) for Greece.

    It'll default for certain 101%.
  • GOODEMPIREGOODEMPIRE
    I fully agree, but I'd like to learn more about what the particular diagram means. Their borrowing costs are skyrocketing, and....?
  • Vitaliy_KiselevVitaliy_Kiselev
    @GOODEMPIRE

    You can read something about famous GKO and 1998. Same shit.
  • GOODEMPIREGOODEMPIRE
    yeah. this way it sounds more impressive to a Russian
  • zcreamzcream
    Here is the risk. German bunds yield 2%. The germans have a budget surplus and a very reasonable debt load. So it may be assumed as a risk free return (relatively).

    If greek bonds yield 62%, assume the chance of a default 100% tomorrow. So if the bonds were issued at a 6% rate, today they trade at slightly more than 10c. In reality, we need to calculate the average period of the bonds, which would be possibly 6 months. In which case, 20c is the average price.

    After the default, assume a normal issued term yield of 6%. This chart states that in the case of a complete default today, the bondholders are looking at wiping out approx 80% of their value.
    If greek bonds are valued at 20c then the extra 1.2c equates to a more normal yield.

    If the default is in a month, then add the interest paid to the post-default value. So if I hold the bonds, I get 5c for holding it for a month. Thus, a reduction to 20c leaves me a loss of 75c only.

    In order for me to buy new bonds now at 6% and break even, then I need to recover 80c in terms of interest. Thats a holding period of 13 months.

    This chart is telling us that the chance of a complete default within 13 months is 100%.

    In practice, assume a 50% haircut. So in the case of a default, the greek govt will reduce the principal on bonds to half. In this case, I only need to recover 30c in case of new bonds. Thats a holding period of about 6 months.

    If we assume a 75% haircut, thats an recovery of 5c in interest. Thats a 1 month holding period.

    The markets are saying that there is a 100% possibility of a default (where 50-75% of the principal is wiped out) within a period of 1-6 months.

    I need to go through this again to check the numbers - but its a simple model.
  • Vitaliy_KiselevVitaliy_Kiselev
    @zcream

    You don't need all this numbers to understand that is going on.
  • Vitaliy_KiselevVitaliy_Kiselev
    So, small update

    Yields >70%

    All food is up 10% due to new taxes

    Real freedom(tm) from money is not far.

    Lets Live Not by Lies(c)
  • zcreamzcream
    @Vitaliy_Kiselev The numbers simply state the timeline of the default. It should have been obvious a couple of years ago that Greece would default. Breaking down the probability simply indicates the timeline.
    While its not interesting to apply the numbers to Greece - these can be applied to Portugal or Ireland, or even Italy to check what the indicated timeline of default is.
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