Baa-doing-a-doing! Big jump in Greek bond prices on Friday after Thursday’s “financing offer” agreement. Look at this 2013 bond go. Actually, look at them all go, across maturities.
Deranged relief rally or something else? We are going to go with something else. Something a bit less conducive to the hype that Greece is getting a significant contribution from its bondholders. (Versus, perhaps, a significant rate-lowering by official creditors.)
We’ll go back to Nick Firoozye, Europe rates strategist at Nomura, who makes an invaluable point on bond price implications from the options within the financing offer…
They will carry a step-up or fixed rate coupons (with coupons on par bonds considerably lower than those on discounts) and all have the same NPV (79) if risky cash flows are discounted at a 9% yield and the principal is discounted closed to swap rates. Interestingly, if we use Thursday’s (21 July) GGB curve to discount the risky coupon cash flows, the price of the bonds being offered at the exchange would be around 70% according to our preliminary calculations, which is significantly above the trading prices of bonds between 2013 and 2019, which can be offered in return of the new bonds.
“Nice to see you, to see you…NICE!”
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