Crash Helmets In Normalisation – Greek Bonds Are Back

It is amusing to read that even analysts are saying that nobody is paying attention to data and Fed speak in the past week.

That is because the market was just concentrating on the next big trade which has been the shift back into EM risky assets from the long US equities stand point.

IMF came out to estimate only a 0.1% probability of a global recession now compared to their assessment of 6% back in October last year and for monetary policy to normalise in the meantime.

So Greece is coming back to the international bond markets today for about EUR 2 bio in 5 year notes which will be a sell out, pretty much like the Ukraine 10Y bonds launched also in April last year.

The 10Y Ukraine USD paper is not looking too bad for a new vassal state of the American good guys, even if they have nothing in their coffers.


And why does Ukraine not go any lower ?

Because everyone knows this is what happened to Greece the last time ! [note that the debt restructuring resulted in a 53% face value loss and coupon reduction to 2%]

greek 10y eur bonds

Why bother to wait for it to crash then rally ? Lets pretend the crash is over.

For that reason that it is a no brainer, we are witnessing a never before seen collapse in credit spreads throughout the world.

Using information that is available, I compiled a table of the cost of 5 year credit protection and we are hovering at 6 year lows although I only used the 1 year result (and don’t ask me why Singapore is not there – because it has never been but I would guess it is somewhere between Switzerland and Hong Kong).

sovereign cds

Greece has come a long, long way from 264% in 1Q12 (which is very odd, because that would wipe out your capital 2.64 times over ?) and also its 6 year average of 21.7%. From 264% to 4.22%, I suppose we can still hope for more because Spain is on par with China these days.

Even little debt restructuring Dubai, who saw highs of 9.8% back in 2009 and averaged 3-4%, is now rubbing shoulders with Portugal.

I used to get slightly nervous when Indonesia goes under 4% and the same for the Philippines. It was always a sign that there is no fat left in credit. But since the inception of QE, sub 2% has been the norm and there was considerable retraining on my part, telling myself that it is a new world at work and the Philippines is lording over Indonesia these days.

April 9 (Bloomberg) — Greece has strong investor demand for country’s sale of 5-yr bonds, Finance Ministry official
• Official says Greece to wait 24-hrs before announcing bond-sale results
• Bond sale meant to fill gap in Greece’s yield curve
• Expects bond sale will help lower T-bill rates
• Country weighing possible 12-mo T-bill sale
• Book on 5-yr bonds to open tomorrow morning London time

Strong investors are probably not loyal investors. And if you take a look at Cyprus at 4.4% credit protection cost, your heart bleeds for the poor depositors who had their savings subpoenaed  last year.

And the hands stretch out for more as we see Sri Lanka and Pakistan with new issues yesterday. Pakistan order book 7 bio for 1 bio 5Y at 7.25% and 1 bio 10Y at 8.25%, a bit iffy because the issuer is the President – human. Sri Lanka 5Y at 5.125% (down from 5.5% initial) and order book of 4.25 bio for a 500 mio issue.

I am sure the new Ukraine will be coming again …. maybe after Greece and Cyprus.

And we have one big sucker coming just in time to buy these bonds.
“[TOKYO] Japan’s giant public pension fund, the world’s largest, has issued a tender to hire asset management companies to supervise its US$101 billion portfolio of foreign bonds aimed at generating higher returns to cope with the country’s ageing population.”

When I was much younger and learnt about these sovereign credit spreads, I thought they are an absolute waste of time because countries cannot fail (I had not seen crises yet). And so I learnt the hard way.

Now I tend to think I was right in the first place. Because there is the IMF, as long as you are America’s ally.

And I am thinking who would be buying all these bonds with no meat ? Don’t they know that 10 years is a long time and we are just 6 years from the last crisis ?

Is normalisation supposed to bring you back to normal or is it suppose to equalise everybody ?