Greek Tragedy

January 30th, 2017 8:56 am | by John Jansen |

I received this article from a fully paid up subscriber who noted that 10 Year Greece bonds were wider by 34 basis points today. He did not note if that was against Bunds or Treasuries.

Via Bloomberg:

Greek Bonds’ ECB Fantasy Faces Cold Reality of IMF Report: Gadfly
2017-01-30 13:21:20.573 GMT

By Marcus Ashworth
(Bloomberg Gadfly) — It was never going to last. Greek
government bonds have given back about a sixth of their
surprising gains late last year, having reacted badly to a
leaked International Monetary Fund draft report describing the
country’s debt and financing needs as approaching “explosive”
territory. Creditor woes look depressingly familiar, and there’s
probably a lot more bond pain to come.

Greece’s recent fixed-income popularity reflected signs
that government budget proposals would meet with approval from
the European Commission, European Central Bank and IMF, and at
long last Greek officials and the troika would have the
appearance of getting along. Some improving economic data also
helped. These ignited hopes of Greece being accepted finally
into the European Central Bank’s Public Sector Purchasing
Program, and sparked a run of gains that made the government’s
securities the best performer in Europe last year.
Greece was never eligible for the ECB’s QE as its bonds are
deeply non-investment-grade, and it’s mired in its third
bailout. The idea that it would soon shake off either of these
conditions, let alone both, never made sense. Inflation at a
four year high is just the latest scare, as it threatens to make
farcical the whole pretense that its debt is remotely
sustainable — it has at least 7 billion euros ($7.4 billion) of
bonds due to mature before August.
While the country seeks a fresh round of funding, the IMF
board will meet on Feb. 6 to discuss its debt-servicing
capacity. A return to the bad old days of bickering between the
Greek government and its main creditors beckons. Germany is
diametrically opposed to any debt forgiveness, and the IMF draft
report says this is unavoidable.
Those contradictions aside, the one thing they can agree on
is that Greece honors its commitment to get to a 3.5 percent
budget surplus to GDP by 2018. The IMF says Greece is some full
2 percentage points shy of hitting that target, so it must cut
state pensions and the tax-free allowance on personal incomes to
5,000 euros. Both Prime Minister Alexis Tsipras and Finance
Minister Euclid Tsakalotos have in the past week made comments
this would be “unacceptable” and not a “single euro” more of
austerity measures will be approved.
A European Commission spokeswoman said Monday there’s no
reason for  an “alarmist assessment” of Greece — adopting an
amazingly passive stance. The IMF view offers no such pretense.
And bond investors, who cannot afford such a chilled view, will
vote with their feet accordingly. Hopes for entry into the inner
ECB club will have to be put on the backburner, and consequently
Greek debt should return from whence it came.
This column does not necessarily reflect the opinion of
Bloomberg LP and its owners.

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