Courtesy of Tradeweb, a summary of the Greek bond yield action this Monday:
Yields on the 10-year Greek government bond surged to their highest levels since November of 2012, according to data from Tradeweb. The bid yield on the 10-year Greek bond closed at 15.429%, the highest yield since November 30, 2012, when it closed at 16.262%. Today’s closing yield was up 462 bps from the close on Friday at 10.814%. This is the largest one-day yield increase since Tradeweb began trading Greek government bonds in November of 2001. The next closest one-day move by order of magnitude was on March 7, 2012, when the 10-year bond surged 388 bps amidst the Greek debt swap to avoid default. Read more
The writer is chief economic adviser to Allianz and chair of US President Barack Obama’s Global Development Council
Sensing that this could be “history in the making” for Greece and for Europe, I decided a few weeks ago to keep physical copies of the FT (yes, I still get a physical copy!). While the inside of the paper contained rich reporting and comprehensive analysis, the headlines on the front page ended up providing a great feel for what transpired in this horrific tragedy. Read more
We’ll be slamming up the best of our collective inbox on matters Greece as and when the good stuff pours in.
Catching up on the last few hours, here’s JP Morgan’s Greg Fuzesi:
In light of the deepening crisis in Greece, a key question is how the ECB will respond to any signs of contagion to the rest of the Euro area. At the end of today’s policy statement about the ELA decision, the ECB said that “the Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area.” The ECB added that “the Governing Council is determined to use all the instruments available within its mandate.”
For the latest on the ECB’s liquidity position on Greece, see our post here.
Meanwhile, here’s some instant analysis by way of the FT Alphaville collective inbox:
UPDATE: Capital controls and a bank holiday now confirmed; full research pack from Buiter, Barr and others available in the usual place. Read more
From Barc as, per the FT, hopes fade ” that Greece and its creditors would strike a definitive deal on Monday to unlock €7.2bn of desperately needed bailout funds and save the country from default.”
This guest contribution, from Giles Wilkes, sprung from a fierce internal debate amongst the FT’s leader writing team on Wednesday…
The standoff between the Greeks and their European creditors has often been compared to a Prisoner’s dilemma. This foundational scenario for game theory – famously, the expert discipline of Yanis Varoufakis, the Greek finance minister – concerns two prisoners accused of a crime who are handled separately by the police. Each are given the choice either of ratting on their accomplice, or staying silent. Should just one of the prisoners choose to rat on the other, he will walk free with a reward while his mate languishes in jail. If both hold firm, they each walk free unrewarded, while if they each betray their friend, then both are thrown into jail. Read more
Officially, Syriza wants Greece to remain in the euro area — but the strength of this desire obviously depends on the circumstances. There is no point in avoiding the costs of exit if staying in the single currency only guarantees years of stagnation, perhaps with the added pain of unhelpful “structural reforms” imposed for ideological reasons.
The question, then, is whether circumstances favour Greece staying in the monetary union, or striking out on its own. A fascinating set of notes from Oxford Economics suggests that you would be unwise to underestimate the chance that the Greek leadership voluntarily chooses to leave the euro area. Read more
Here’s former IMF staffer Peter Doyle , with some bold advice from the wings of the IMF Spring meetings…
_______ Read more
With Greek sovereign yields blowing wider on Thursday (and pretty much staying there), it’s worth revisiting what exactly might happen if, say, May 1 arrives and Greece fails to pay the €200m due to the IMF that day.
Received wisdom has it that the ECB will withdraw the ELA — emergency liquidity assistance — currently propping up the Greek banking system, which will promptly collapse; Tsipras and Co would then be forced to bring back the Drachma (or similar) and Greece would exit the eurozone.
But what do the “rules” here say? In the case of the ELA they run to all of two pages. Click the image to read in full. Read more
Bond Vigilantes reminds us of this:
Greece has raised €3bn in a five-year bond deal after attracting in excess of €20bn in orders for its eagerly anticipated return to the bond market. The yield on the deal was confirmed at 4.95 per cent – much lower than most analysts expected. Read more
He walked into my office and threw the manuscript on my desk with a thud.
“It’s called Thankful For Zombies. A zombie story where…”
“Nope,” I said.
His face deflated like a balloon. “But I didn’t even…”
“Zombies are overdone,” I said.
“But this is a zombie story with a twist!”
“Zombie stories with twists are super overdone.”
- Scott Alexander, Dec 7
And he has a point. BUT he didn’t mention the French corporate sector. A large mistake exposed by BofAML’s Gilles Moec, who revels in the narrative freedom that mistake implies. Read more
Eric Dor of the IESEG School of Management in Lille has a handy table. Click to enlarge…
So, the Greek government has left this latest, very long, round of eurozone marriage counselling to head into, well, predictable domestic acrimony with headlines like “Crucial Test for Greek Coalition” trailing in its wake. From the ekathimerini:
“We did everything we could. We achieved significant improvements,” noting that Greece would remain in the euro if the package was passed and otherwise risked “descending into chaos.” “It is now down to the sense of responsibility of all political parties and each individual MP,” Samaras said.
Democratic Left issued a rejection within minutes, saying it does not agree with the outcome of negotiations with troika and repeating its objection to labor reforms.
JP Morgan’s Alex White points out that the next few weeks are going to be critical and that this one is likely going to the wire… again. Read more
Here’s a chart from Nomura:
Citi are pushing that fateful day back:
We have held the view, since May 2012, that a Greek exit from the euro area (“Grexit”) in the next 12 to 18 months is a high-probability event (90%) which we assume, for the sake of argument, would happen on January 1 2013. We are now cutting the probability of Grexit over the next 12-18 months to 60% and judge that this event will probably happen later than we previously thought, most likely in 1H 2014.
A cynic might suggest they were getting the jitters as deadline approached but lets hear them out (our emphasis). Read more
Apparently that Greek shortfall is even bigger than the even bigger figure reported in the German press on Monday.
From Eurointelligence: Read more
That’s a couple of the examples of preparations that US companies are making for a Greek eurozone exit, according to the New York Times.
Here’s the trucks: Read more
If you hit your head hard enough, you’re bound to start forgetting things.
We can’t get enough of these — predictions for the format that the ECB’s new, “convertibility risk”-focused bond-buying programme might take.
This one’s from Citi’s Global Economic Outlook for August, which dubs the expected ECB operation the “Conditional Government Bond Purchase Programme” (snappy!). Citi forecasts that the ‘CGBPP’ will concentrate on buying T-bills. These are usually protected from losses during a sovereign debt restructuring: Read more
The drum beat of Euro grandees hinting that Greece should just get out of the Eurozone is getting louder once more. Here’s former Bundesbanker Otmar Issing discussing the matter in simple language for the audience of CNBC…
Click to view. Read more
We asked, and you answered by completing FT Alphaville’s (wholly unscientific) survey on Tuesday.
hastily put together intricately designed poll reveals that 41 per cent of finance professionals, students, developers, and random people* think that Greece will exit the euro within the next year. Read more
The recent utterings from Europe’s political elite regarding a Greek exit from the euro and reports that the IMF is ready to walk away have been hard to read. To what extent are these warnings pure postulation? The timing is rather suspicious, given that they have coincided with the Troika delegation’s visit to Athens to assess how the austerity programme is coming along.
On the other hand, if they reflect the mood among the policymakers, there is reason to be worried, especially given how freely and eagerly they are now discussing a potential exit. Read more
Citi’s iconoclastic chief economist Willem Buiter and team are seeing a very high likelihood of a Greek eurozone exit in the not-too-distant future, and a sovereign bailout likely for both Spain and Italy this year.
From their latest global update (our emphasis): Read more
Capital Economics’ Roger Bootle has won the £250,000 Wolfson Economics prize for finding a practical way to break up the eurozone.
Though, as it turns out, Bootle doesn’t think it would be all that practical. Read more
FT Alphaville didn’t enter the Wolfson economics competition, in part because our pizza drawing skills don’t pass muster, but Nomura’s Jens Nordvig and Nick Firoozye did. Their entry landed them one of the five finalist spots (more about those here).
Ahead of the announcement of the winner on Thursday, the pair have published a rather interesting and disturbing list of what they learned in the process of eurozone breakup solutionising. It won’t please anyone who’s been arguing that a break-up might not be such a big deal. Here’s a tl;dr version of their list of grim learnings: Read more
We already knew we’d have to watch for a Spanish banking bailout request tomorrow.
Now comes Moody’s with a report warning that “recent developments in Spain and Greece could lead to rating reviews and actions on many of the euro area countries” — and offering a generally downbeat if less-than-original assessment of the euro zone’s future in general. Read more
We’ve all been griping about the “bank jog” that has been eating away at the Greek banks’ deposit base — €70bn or so of deposits flying out of the country’s banks seems to be a bad news no brainer.
But what if the scale of the flight has a counter-intuitive positive side? (Although “ever so slightly less negative side” would probably be a better description.) Read more
The pound has been the strongest performing G10 currency so far this year, even though it has been weakening of late against the US dollar and Japanese yen.
Grexit not this year. Maybe in 2013, with a 10 per cent drop in GDP. Continued financing from the IMF and the EU (through the Balance of Payments Assistance facility, possibly) to cushion the blow.
All those prognostications and more… Read more