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Greece’s New Bonds Yield More Than Portugal’s on Growth, Repayment Concern

March 09, 2012

Greek government bonds due to be issued after the nation’s debt swap is completed were priced at less than 30 percent of face amount, signaling concern the country will struggle to repay its revised obligations.

While the debt swap is “a big step forward, it’s not totally out of the woods yet,” said Mohit Kumar, the head of European fixed-income strategy at Deutsche Bank AG in London. “There is a premium still demanded for Greece.”

Greece’s economy shrank 7.5 percent in the fourth quarter from the same period in 2010, the Athens-based Hellenic Statistical Authority said today. The contraction, based on non- seasonally adjusted data, was wider than a Feb. 14 preliminary estimate of a 7 percent contraction, the authority said.

The 2 percent bonds maturing in February 2023 were bid at 25.5 cents on the euro at 4:25 p.m. London time, BNP Paribas SA data on Bloomberg showed. They were offered at 26 cents, according to Jefferies Group Inc. That left the yield on the securities bid at 19.7 percent and offered at 19.42 percent, the data showed. Portuguese securities maturing in October 2023 yielded less than 14 percent.

The so-called gray market for the new Greek debt is trading actively as prices have risen about 7 cents on the dollar to yield about 15 percent to 20 percent, according to a person familiar with the trades who declined to be identified because he wasn’t authorized to discuss the transactions.

“The market will price” Greek bonds “at a premium to Portugal,” said Kumar.

‘Feeling its Way’

The bids shown by BNP Paribas rose from less than 20 cents on the euro at the start of the day.

“The market is feeling its way and you get a feel for what it’s worth by trading it,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “There’s an argument that holders got a fairly good deal in the end based on where the market was priced. But this is deeply distressed debt, like trading high-yield securities.”

Greece said today it will achieve a 95.7 percent participation rate in its debt exchange after activating so- called collective action clauses to force losses on investors. It will be the biggest restructuring in history.

Bondholders tendered 152 billion euros ($199 billion) of Greek-law bonds, or 85.8 percent, and 20 billion euros of foreign-law debt. Greece extended its offer to holders of non- Greek law bonds to March 23, after which sweeteners will no longer be available.

Second Default

“The debt-swap results show that international markets see the prospects the Greek economy has to regain a sustainable fiscal situation,” Greek Finance Minister Evangelos Venizelos told lawmakers in Athens in comments televised live on state-run Vouli TV. Participation “surpassed expectations,” he said.

Greece’s use of collective action clauses forcing investors to take losses under the nation’s debt restructuring will trigger payouts on $3 billion of default insurance, the International Swaps & Derivatives Association said. A total 4,323 credit-default swap contracts can now be settled after ISDA’s determinations committee ruled the use of CACs is a restructuring credit event.

Markets are pricing a second default for Greece, Bill Gross, co-chief investment officer at Pacific Investment Management Co., said in a radio interview with Tom Keene and Ken Prewitt on “Bloomberg Surveillance.”

‘Material Risks’

Greek bonds that will mature in February 2042 after the debt swap, the longest-dated of the securities, were bid at 22.25 cents on the euro and offered at 24.75 according to BNP Paribas prices.

The price of existing Greek notes due on March 20 rose to 27.97 percent of face value. Prices on Greek bonds under international law ranged from 82.75 cents to 5 cents.

Yields reflect “material risks” stemming from the implementation of the debt swap as the nation faces an election and seeks to comply with terms of its bailout and debt-reduction programs, New York-based Morgan Stanley said yesterday in a research report.

The market may receive as much as 65 billion euros of new Greek bonds with an average maturity that’s increased to 20 years from seven years, Morgan Stanley strategists Paolo Batori and Robert Tancsa and economist Daniele Antonucci wrote in the report. Absent “surprises,” the securities may stabilize at about 25 cents, they wrote.

To contact the reporters on this story: Paul Dobson in London at; Keith Jenkins in London at

To contact the editor responsible for this story: Daniel Tilles at

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