Greek Bond Sale
Research for Online Investors

by John Dalt

3/4/10

Greece was able to sell $6.8 billion today in a government bond auction.  They had a coverage ratio of over 3, and the bond sold at a 6.4% rate of return.

The Greek government announced austerity measures yesterday, involving pay cuts, pension freezes, and tax increases. Greece must borrow over $72 billion this year, and need at least $27 billion by the end of May to meet budgets and rollover existing debt. The interest rate of 6.4% was double the rate paid by Germany on their bunds.  If the next sales are approximately the same size, you could say 1 down 10 to go!

Greece hopes to lower the interest rates the ‘bond vigilantes’ require to purchase their debt by instituting the tough budget measures.  Ireland borrows for a little more than 1% above German rates.  90% of the bonds were bought by investors from outside of Greece.

Greek Prime Minister George Papandreou will meet with Germany Chancellor Angela Merkel on Friday.  Papandreou would like Merkel to publicly back Greek’s credit and make moves to lower Greece’s credit costs.  Germany and France have met on plans for their state owned banks to buy Greek debt or guarantee the debt to banks that did buy them.

Moody’s earlier said that Greece may face a downgrade on their sovereign debt.  Moody’s said today that Greece must execute their plan perfectly to avoid a downgrade.

Two-thirds of Germans are opposed to helping Greece according to the newspaper Bild.  53% would rather expel Greece from the EU than let them threaten the stability of the monetary union.  Some Greeks have a long memory, recalling that the Nazi’s took Greek gold out of the Bank of Greece during WWII, “and they never gave it back” according to Deputy Prime Minister Theodoros Pangalos.

The bottom line is Greece was able to sell their debt today.  They must sell three times as much by the end of May to avoid default on existing debt or bills, and must access the markets for another $45 billion later in the year.  They are paying dearly now and it will get more expensive if they do not bring their budgets under control.

We entered a currency trade today in the SwingTrader on the Swiss Franc.  It is cheap compared to the dollar, avoids the destruction of being associated with the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) and it is not the dollar or the euro.  Switzerland has spent stimulus dollars but their debt to GDP is low.  Their government is a confederation and not an all powerful centralized system.

We have sourced Asia Times, “Greece Calls in War Debts” and Reuter’s, “Greece Draws Strong Bond Demand at High Price.”

The Greek "problem" is not over yet.  It hangs over the markets, traders know bad news could trigger a selling frenzy.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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