The game being played out between Greece and the rest of the eurozone has perhaps become a bit tedious by now.
The pattern is pretty well-established. Greek bonds take a dive as investors start worrying –> The eurozone alludes to a bailout of some sort –> Bonds recover temporarily –> Greek bonds take a dive as investors start worrying –> The eurozone alludes to . . . and so on.
It’s a point aptly brought up by BNP Paribas’ Paul Mortimer-Lee:
In short, the various uncertainties surrounding the programme need to diminish, and that will reduce the Greek spread. It’s not difficult. So far, the process has been unnecessarily drawn out and remains incomplete. Every time the Greek 10-year spread spikes to a new high around or over 400bp, we get a bit more news from the EU that brings it back in again for a time (the rally after the February Council decision and this week have both been around 90bp). These rallies have been a catalyst that has enabled Greece to sell a bit more debt (reminiscent to UK old timers of the “Grand Old Duke of York” strategy). The market is growing tired of this process, which is why the spread is on a widening trend.
Nowhere is the sequence more evident than in the announcement of a loan package for Greece over the weekend. On Monday the 10-year Greek bond yield dropped 45bps to 6.65, right before a T-bill sale. But already on Wednesday yields are creeping up to back over the 7 per cent mark.
You can see the Greek repeat pretty clearly in BNP Paribas chart form:
Anyway – the solution according to BNP is for Greece to just go ahead and request the cash already:
The credibility of the EU is damaged each time we go round the same boring course. It must stop. No more spikes in spreads. Flash the cash. Now.
Others of course have a different opinion.
Either way, and for the time being, markets are officially bored of Greece — and that’s a bad place for it to be right now.
Related links:
A Greek bail-out at last but no real solution – Wolfgang Munchau, FT
The kindness of (bond market) strangers – FT Alphaville