A Greek T-bill oddity | FT Alphaville

A Greek T-bill oddity

From the English edition of Kathmerini (hat-tip to a reader):

The prospect of a freeze in payments appeared even more serious on Thursday, after Greek commercial banks failed to cover the sum of 300 million euros of supplementary, noncompetitive bids for Tuesday’s auction of T-bills, providing only 155 million. The shortfall is interpreted as a clear message by banks to the government that they are unwilling to fund future issues of T-bills.

The results of Tuesday’s full six-month T-bill auction via the government’s debt office (you can break out the €300m sum offered to non-competitive bids by subtracting ‘amount auctioned’ from ‘amount accepted’):

And the results of Thursday’s supplementary auction:

By contrast, an auction of 13-week T-bills in August both allotted and received full bids for €300m. Two July auctions both allotted and received the same number, €375m.  So did June’s six-month auction. There was no failure to cover in any auction in 2011, until this one. It’s curious in that Greece has to roll over its short-term debt and does face constant short-term cash-flow demands — like any government. Most governments can easily pay though.

So something’s up. IMF staff noted in the report attached to their fourth review of the Greek bailout that: “The authorities’ access to Treasury-bill funding has tightened. Banks have shown increasing reluctance to roll over the outstanding t-bill stock of €9 billion.” We don’t discount other possible explanations for the fall in demand (an effect of emergency liquidity assistance?) but the banks’ behaviour is striking.

Plus, getting less financing in than planned in these auctions does appear to present a short-term funding problem for Greece – in addition to the drama surrounding the release of its next long-term tranche of IMF and EU loans.

It’s also bad news for the bond swap, participation in which will be announced soon (we’re no longer expecting the 90 per cent initial target in any case, but it might be 70 per cent).

It’s fair to say that Greece has been playing a poker game with its official creditors of late, in order to get them to blink and cop to looser fiscal conditions before time appears to run out. (Germany is playing its own bluff, holding out the prospect of Greece somehow being made to leave the euro in the long term in addition to not getting cash if conditions aren’t met.)

Anyway, if Greece has excellent “private” information (to borrow a phrase from game theory) about when exactly time would run out, or what its banks are prepared to finance, it might possess a strong hand.

If the rug suddenly gets pulled out from under it — Greece doesn’t.

Greek five-year CDS had hit 3,000bps at pixel time, Markit said.

Related links:
Greek default prediction du jour – FT Alphaville
Hooray for, erm, Greek ELA? – FT Alphaville