Monday, 25 July 2011

Greece The morning after

The fact that Europe’s countries are NO longer partners but changed their relationship to CREDITOR-LENDER is the only real “Game Changer”.

  • Now that we have more details of the new bailout we can dissect the numbers further. The so called 21% haircut on the NPV of the rolled over bonds is arbitrary. It only comes if we assume that the risky coupons are discounted by 9% for 30Y or roughly 550bp for the Greek spread. As we show later, it can as high as 40% or as low as zero! Thus the PSI is dubious. 
  • The total size of the new bailout is 109billion.
  • Only 34 billion is hot new money that would go directly into Greece to repay any bond redemptions and plug deficit holes.
  • Another 20billion would go into buying back some Greek bonds from the secondary market. The EU/IIF estimate savings of 12.6billion. This means average price of 62% on a Notional of 32billion. This figure may be optimistic as most long dated GGB are locked in the Hold to Maturity (HTM) book marked at Par. For example between 2019 and 2030 there are 71billion. To find almost half of them at 62% is a tall order.