Shiny Things (1-1-2012) wrote: [link]
Re:Sovereign debt question on 'yields'
Cool, thanks. Though it's not exactly "reasoning", it's just facts; relativism is for philosophy students.
It is fortunate here that we mutually agree, that out of all others, this one particular fact: that the ECB is unlikely to bail out Greece completely or at least substantially is superior over all others. A certain acceptance of 'relativism' is thus important insofar as mature inter-personal communication remains a desirable.
They're not, really. The bid-offer spread on Greek govvies is three or four points, so the difference between 42 cents (for the 15s) and 45 cents (for the 5s and 10s) doesn't even cover the bid-offer spread; it could easily just be noise.
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Side note: since this screenshot is from back in September, I decided to dig up some more current Greek bond prices. Here's the freshest (bid-offer prices, from Friday arvo):
2y: Price 26.9-30.3, offer yield 117%
5y: Price 20.4-23.4, offer yield 47%
10y: Price 20-26, offer yield 28%
15y: Price 21.5-24.5, offer yield 25%
And you'll see we've got exactly the same situation today as we did in September. The 2yrs are trading a tad higher, but the rest of the curve's trading at a consistent 22-23 cents mid, which reflects what bondholders expect to receive when Greece restructures or defaults.
That said and I'm speculating; one must also note that not all '2 yr to maturity bonds' ("2yr bonds" as reported) are not the same despite their same categorization where the news presentation is concerned. An 'aged' 15yr Greek bond with 2 yrs left to maturity might have a coupon of 2% (reflecting better times at issuance) but a 1yr old 3y bond might have a coupon of say 6% (reflecting decreased issuer credit worthiness at issuance etc) so for BOTH to have the same YTM%, obviously a different pricing should be expected: the Maturing 15yr one priced lower than the 1yr old 3 yr bond on the occasion of a transaction at time 2 yrs to maturity- not that I believe that matters much now.
The reason why the ECB is unlikely to bail out Greece is because any bailout would requiring raising cash either through taxes or just the printing press- the former inflationary on taxes payments, the latter inflationary on the entire economy- and a substantive majority of the Euro nations seem unwilling to have either form of inflation spread just to redeem the Greeks from bankruptcy- a nation whom someone in this forum has in fact termed 'indolent'. Perhaps the poor Greeks would have to pay dearly for their credit binge; perhaps the poor Greeks would repay their bondholders through an extended installment plan by mutual agreement.
Whatever it is, the market has spoken. According to Shiny's figures, bondholders seem now prepared for a 70-80% haircut according to the transacted values of their bonds (and perhaps a cut in the coupon rate too)- and no reason for the ECB to change these sentiments/ outcomes I feel.
An so an expensive lesson learnt for those who invest without homework done. Not every sovereign bond is a creditable one, the price for investing recklessly is the substantive loss in one's financial capital.
Every dollar spent is a dollar to be earned and ditto that borrowed. There is no free lunch in this world.
And thanks for all the contributions and listening folks. I hope we are all the wiser now. And do continue to comment, I think that this has been a productive discussion thus far.
Rgds
B.C.
P.S.: One bond yield calculator for calculating Yield to Maturity/ annual yield is found at [link] though it responds cranky sometimes with an "error" result.
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HWZ:
02Jan2012: Sovereign debt question on 'yields'
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