Comments on: The curious Greek bond price chart A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: GingerYellow Wed, 27 Jul 2011 10:40:06 +0000 “Embedded in that mechanism is an implied quid pro quo. The banks will make a lot of money, at least on a mark-to-market basis, by tendering their long-dated Greek debt. ”
Except most of these bonds aren’t marked to market by the banks. In many countries, even where they are held as available for sale, they don’t take any capital hit/gain from MTM. So they’re going to take a hit from realising the par loss.

By: alea Tue, 26 Jul 2011 19:19:16 +0000 and that’s enough to hit €54bn btw (€40bn alone matures in 2014).

By: alea Tue, 26 Jul 2011 19:07:07 +0000 Felix,
Nothing maturing before and including the may 2013 issue, will be exchanged at current prices, (makes no economic sense…).
Happy to to take a bet on this.

By: Nameless Tue, 26 Jul 2011 18:27:59 +0000 I’m very curious to see where bonds with prices below 50c come from. According to the Bank of Greece, their 30-year bonds traded at 42c just before the bond exchange was announced. istics/rates_markets/titloieldimosiou/ti tloieldimosiou.aspx

I would’ve thought that those were old 30-year bonds, but Greece never issued any 30-year bonds with coupons below 4.5%. So even bonds issued in 2005 would trade no lower than 40c. And the line is too regular to be real. It must be a statistical glitch. Someone needs to look at the data points closely and check what’s happening.

Blue dots aren’t aligned along the horizontal line, because the discount rate used to calculate NPV loss in the bond exchange program is very high (9%) and that means that owners of long-term bonds will be forced to take greater losses (in terms of bond prices) than owners of short-term bonds.

By: FelixSalmon Tue, 26 Jul 2011 17:45:41 +0000 Alea, take another look at that IIF document, it clearly says that some €54 billion of bonds maturing before mid-2014 are going to be exchanged.

By: alea Tue, 26 Jul 2011 17:01:11 +0000 “It doesn’t matter if your bond is maturing in six months or if it’s maturing in 26 years…”
Yes it does matter, the exchange is for bonds that mature between August 2011 and 2020.
There is an obvious arbitrage between the market value of these bonds and the new bonds since we know that the exchange will result in a 21% NPV loss (not to be confused with haircut (reduction the nominal value of greece’s debt) which is only 10% via the bond exchange), and the exchange value can be calculated, around 70% for the old bonds eligible for exchange.
For all practicakl purposes, bonds maturing before 2014 won’t be exchange, since they trade above 70.