Fixed Income Weekly

Greece
With a budget deficit of 13% of GDP and a rapidly maturing debt load, Greece is in a little bit of a pinch. I think I mentioned this briefly last week but sovereign debt is becoming more of a global problem, and all eyes are have been on Greece the last few weeks to gauge how other countries will deal with the issue.

Much was made last week when Greece announced they would price €8 billion in 5-year debt in their first bond sale since mid December, but the market initially priced in the concerns accurately when the bonds came to market on Tuesday in a relatively clean auction. But news since then has sent yields on Greek debt higher, including the bond sold in Tuesday at a 99.34 price. That same bond closed at 96.34 today, and it doesn’t even settle for the first time until Feb 2. OUCH!! I heard CDS on 5-year Euro denominated Greek debt quoted at 420 basis points as of this afternoon, up from 324 basis points two days ago when the 5-year priced.

The skittish market comes after comments from Greek Finance Minister George Papaconstantinou, (his close friends call him “Papa”), denying that there is any bailout assistance coming from the ECB or IMF. He also denied any talks with China over a deal to sell a special debt issue to them, which wouldn’t be a bailout per say, but not exactly something a healthy Greece would necessarily have to do.

The near future looks rough for Greece, as half of the bond issuance for 2010 is slated for Q2 to refinance maturing debt. Officials seem confident that fiscal reform will be the answer, but days like today lead me to believe that the market does not share their confidence.


Have a good weekend.
Cliff J. Reynolds Jr., Investment Analyst