Is Greece About to Default?

Poo

*  April 7, 2010, 10:24 AM ET
By Dave Kansas

There’s lots of attention on the long-end of the Greek debt curve, and rightfully so. That’s where the government needs to get a lot of funding work done in the next couple of months, and yields remain high, surpassing 7.1% at one point Tuesday.

But action on the short-end is also gaining a lot of attention. Amid reports of Greek bank selling, short-term Greek bond yields have soared in the past two days. On Wednesday Greek treasury bills with a rough six-month equivalence yielded as much as 6.4%, according to RBS Research. That would be about double what T-bills yielded the morning before and almost six percentage points (or six hundred basis points in Wall Street lingo) more than similar German debt.

Later on Wednesday, October 2010 T-bills sported a yield between 5.2% and 5.6%, underscoring the volatility at the short-end of Greece’s government debt market.

These are giant yields for short-term government debt, especially in the euro-zone. They are signaling one of two things: A looming default or a great buying opportunity.

In anticipation of a default, the yield curve flattens abruptly with short-term yields rising rapidly to match the higher yields for long-term bonds. Long-term bonds already reflect, at least in part, the default debate. It’s when that debate moves closer to reality that the short-term debt suddenly transforms from relatively safe to very risky, driving yields sharply higher as prices, which move in the opposite direction of the yield, plunge.

Is Greece about to default? Hard to say, but it seems more and more likely that Athens will have to tap the EU-IMF aid package sometime soon.

If that happens, then short-term Greek debt might be a bargain. “Greece is not a standalone country,” says Havinder Sian, bond strategist at RBS in London. He says the EU-IMF package means sovereign debt risk is “very muted” over the next year or so.

Longer term, Mr. Sian is less upbeat about Greece funding its obligations. But he doesn’t think the current very high short-term yields make a lot of sense.

ppteam

You just cannot wait Greece default, can you?

Poo

You just cannot wait Greece default, can you?
ppteam 发表于 2010-4-7 21:46

you funny. no I am not wanting for its default. I am trying to understand why it would default.

Poo

回复 3# Poo

at this moment, my understanding it most like will default eventually, but if it take the EU or IMF package, it might prolong the process.
I am not like 星星同学  thinking it might happened this week or next week.