Greek
Bonds. Value or junk?
The European periphery bond markets
have suffered a lot with the adventures of the Portuguese government. Investors
tend to dump periphery bonds en masse without examining the finer details. Let
me explain what I mean. Greece is in the final stages of its fiscal adjustment.
In 2014 it would most probably post a primary surplus. Furthermore Greece has
done its PSI. Bonds have been haircut by more than 75% (in NPV terms). By
contrast neither Portugal nor any other southern country is anywhere near addressing
their debt imbalances. Their PSI’s are ahead, whereas the Greek one is behind.
Moreover, Greece would largely complete the recapitalization of its banks in
the next few days and although they are far from pinnacles of health they too
are in their closing cycles. By contrast, banks in Spain, Portugal or Italy are
at the beginning of the process.
Then there are also the
technicalities of the Greek bonds.
·
The
majority of the Greek debt (except the ECB holdings) is under English law and
thus cannot be restructured by simple act of parliament. By contrast, the
majority of bonds from other countries is under local law and thus amenable to “voluntarily
restructure, roll over or change”.
·
The
new Greek bonds have, cross default
·
Pari
Passu with EFSF loans
·
Sovereign
immunity waiver
·
Negative
pledge
·
Tax
gross up
In other words, the Greek bonds
are much safer than most other periphery bonds. But there are also some trading
technicalities that should be noted.
