indian_warrior
BANNED
- Joined
- Mar 15, 2010
- Messages
- 204
- Reaction score
- 0
Greek Bonds Approach Pakistan Levels on Debt Concern (Update2)
April 23, 2010, 8:32 AM EDT
More From Businessweek
(Adds Greek request for assistance from third paragraph. For more on the Greek crisis, {EXT3 <GO>})
By Keith Campbell and Ben Levisohn
April 23 (Bloomberg) -- Greeces deficit crisis is pushing its bond yields closer to those of Pakistan, a junk-rated nation that is battling the Taliban.
Two-year Greek note yields soared to more than 11 percent after Moodys Investors Service cut the nations credit rating yesterday and the European Union said the countrys budget deficit was worse than previously forecast. Similar-maturity securities from Pakistan, which turned to the International Monetary Fund for a bailout in 2008, yield 12.2 percent.
Greeces Prime Minister George Papandreou, who today called for activation of an EU- and IMF-led financial lifeline of as much as 45 billion euros ($60 billion), has failed to convince investors he can push through the austerity measures needed to shore up the nations finances amid deepening protests at home.
Greece is like an old-fashioned emerging market dependent on IMF help, said William Nemerever, co-manager of the $1.9 billion GMO Emerging Country fund and a partner at Grantham, Mayo, Van Otterloo & Co. in Boston. It compares unfavorably to traditional emerging markets that are now in good fundamental shape, he said. Its kind of in limbo, a reflection of the uncertainty and the disappointing fundamentals in the country that will require some assistance for years.
Debt Ratings
It is a matter of national need to ask officially for the activation of the EU-led aid mechanism, Papandreou said today.
Greek government bonds lost more than 13 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Pakistan debt gained more than 16 percent, according to Bank of America Merrill Lynchs USD Emerging Market Sovereigns, Pakistan index.
The debt of Pakistan, South Asias second-biggest economy, is rated B3 by Moodys, six levels below investment grade. Greeces ranking was lowered one step to A3 yesterday by the company, four levels above junk. Moodys put a negative outlook on the bonds, indicating its more likely to cut the classification again than raise it or leave it unchanged.
The market is evaluating Greece as a single B credit, said David Rolley, who helps oversee $106 billion as co-head of global fixed-income in Boston for Loomis Sayles & Co. There is a very large policy uncertainty that will have to be sorted out before normal liquidity conditions resume. Rolley declined to comment on his holdings.
The yield on the Greek two-year note dropped 36 basis points to 9.83 percent as of 12:15 p.m. in London, paring this weeks surge to 312 basis points, or 3.12 percentage points. The Pakistan note yielded 12.2 percent.
IMF Bailout
Pakistans fight against Taliban militants in the northwest tribal areas will help swell the deficit to 5.3 percent of gross domestic product in the year ending June 30, from 5.2 percent last fiscal year, according to the finance ministry. The Islamic republic, which has a population of more than 150 million, turned to the IMF for an $11.3 billion bailout in 2008 after reserves plunged 75 percent.
The EUs statistics office said yesterday that Greeces deficit was 13.6 percent of gross domestic product last year. The shortfall may rise to 14 percent as off-market swaps cloud estimates, Luxembourg-based Eurostat said. The EU limit is 3 percent of GDP. Greeces GDP per capital is more than 10 times that of Pakistan, according to IMF figures for 2009.
Two-year Greek debt now yields more than 10-year bonds, suggesting investors believe a debt default or restructuring is more likely than a successful rescue, according to Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate and Investment Bank in London. Ten-year Greek bonds, which have also plunged this year, yielded 8.54 percent.
Inverted Curve
The inverted yield curve implies a bias away from the EU- IMF package, Chatwell said. Yesterdays surge in yields was panic station trading, he said. The massively high outright yields are not something that would occur if the market was confident Greece was going to secure funding. If youre holding short-dated bonds, you want to receive cash when it matures, you dont want to be flipped into some other paper. Thats enough to cause this sort of selloff and inversion.
Greece needs to pay investors 8.1 billion euros on May 19 and a further 28.2 billion euros by the end of 2011, according to Bloomberg calculations. The government must raise about 30 billion euros by the end of this year. Greeces borrowing costs more than doubled at an auction of 1.95 billion euros of three- month bills on April 20.
The market is telling you that theres a solvency issue thats likely to peak in the next two years, said Zane Brown, a fixed-income strategist with Lord Abbett & Co. in Jersey City, New Jersey. The EU-IMF rescue package is a weak band-aid and too small, he said.
Credit-default swaps on Greek government bonds climbed 11.5 basis points to 645.5, after rising to a record 650 basis points yesterday, according to CMA DataVision prices. Swaps on Pakistan climbed almost 16 basis points to about 665 basis points.
--With assistance from Keith Jenkins and Karen Eeuwens in London and Naween Mangi in Karachi. Editors: Justin Carrigan, Daniel Tilles
To contact the reporters on this story: Keith Campbell in New York at k.campbell@bloomberg.net; Ben Levisohn in New York at blevisohn@bloomberg.net.
To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net.
Greek Bonds Approach Pakistan Levels on Debt Concern (Update2) - BusinessWeek
Looks like pakistan is benchmark for junk.
April 23, 2010, 8:32 AM EDT
More From Businessweek
(Adds Greek request for assistance from third paragraph. For more on the Greek crisis, {EXT3 <GO>})
By Keith Campbell and Ben Levisohn
April 23 (Bloomberg) -- Greeces deficit crisis is pushing its bond yields closer to those of Pakistan, a junk-rated nation that is battling the Taliban.
Two-year Greek note yields soared to more than 11 percent after Moodys Investors Service cut the nations credit rating yesterday and the European Union said the countrys budget deficit was worse than previously forecast. Similar-maturity securities from Pakistan, which turned to the International Monetary Fund for a bailout in 2008, yield 12.2 percent.
Greeces Prime Minister George Papandreou, who today called for activation of an EU- and IMF-led financial lifeline of as much as 45 billion euros ($60 billion), has failed to convince investors he can push through the austerity measures needed to shore up the nations finances amid deepening protests at home.
Greece is like an old-fashioned emerging market dependent on IMF help, said William Nemerever, co-manager of the $1.9 billion GMO Emerging Country fund and a partner at Grantham, Mayo, Van Otterloo & Co. in Boston. It compares unfavorably to traditional emerging markets that are now in good fundamental shape, he said. Its kind of in limbo, a reflection of the uncertainty and the disappointing fundamentals in the country that will require some assistance for years.
Debt Ratings
It is a matter of national need to ask officially for the activation of the EU-led aid mechanism, Papandreou said today.
Greek government bonds lost more than 13 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Pakistan debt gained more than 16 percent, according to Bank of America Merrill Lynchs USD Emerging Market Sovereigns, Pakistan index.
The debt of Pakistan, South Asias second-biggest economy, is rated B3 by Moodys, six levels below investment grade. Greeces ranking was lowered one step to A3 yesterday by the company, four levels above junk. Moodys put a negative outlook on the bonds, indicating its more likely to cut the classification again than raise it or leave it unchanged.
The market is evaluating Greece as a single B credit, said David Rolley, who helps oversee $106 billion as co-head of global fixed-income in Boston for Loomis Sayles & Co. There is a very large policy uncertainty that will have to be sorted out before normal liquidity conditions resume. Rolley declined to comment on his holdings.
The yield on the Greek two-year note dropped 36 basis points to 9.83 percent as of 12:15 p.m. in London, paring this weeks surge to 312 basis points, or 3.12 percentage points. The Pakistan note yielded 12.2 percent.
IMF Bailout
Pakistans fight against Taliban militants in the northwest tribal areas will help swell the deficit to 5.3 percent of gross domestic product in the year ending June 30, from 5.2 percent last fiscal year, according to the finance ministry. The Islamic republic, which has a population of more than 150 million, turned to the IMF for an $11.3 billion bailout in 2008 after reserves plunged 75 percent.
The EUs statistics office said yesterday that Greeces deficit was 13.6 percent of gross domestic product last year. The shortfall may rise to 14 percent as off-market swaps cloud estimates, Luxembourg-based Eurostat said. The EU limit is 3 percent of GDP. Greeces GDP per capital is more than 10 times that of Pakistan, according to IMF figures for 2009.
Two-year Greek debt now yields more than 10-year bonds, suggesting investors believe a debt default or restructuring is more likely than a successful rescue, according to Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate and Investment Bank in London. Ten-year Greek bonds, which have also plunged this year, yielded 8.54 percent.
Inverted Curve
The inverted yield curve implies a bias away from the EU- IMF package, Chatwell said. Yesterdays surge in yields was panic station trading, he said. The massively high outright yields are not something that would occur if the market was confident Greece was going to secure funding. If youre holding short-dated bonds, you want to receive cash when it matures, you dont want to be flipped into some other paper. Thats enough to cause this sort of selloff and inversion.
Greece needs to pay investors 8.1 billion euros on May 19 and a further 28.2 billion euros by the end of 2011, according to Bloomberg calculations. The government must raise about 30 billion euros by the end of this year. Greeces borrowing costs more than doubled at an auction of 1.95 billion euros of three- month bills on April 20.
The market is telling you that theres a solvency issue thats likely to peak in the next two years, said Zane Brown, a fixed-income strategist with Lord Abbett & Co. in Jersey City, New Jersey. The EU-IMF rescue package is a weak band-aid and too small, he said.
Credit-default swaps on Greek government bonds climbed 11.5 basis points to 645.5, after rising to a record 650 basis points yesterday, according to CMA DataVision prices. Swaps on Pakistan climbed almost 16 basis points to about 665 basis points.
--With assistance from Keith Jenkins and Karen Eeuwens in London and Naween Mangi in Karachi. Editors: Justin Carrigan, Daniel Tilles
To contact the reporters on this story: Keith Campbell in New York at k.campbell@bloomberg.net; Ben Levisohn in New York at blevisohn@bloomberg.net.
To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net.
Greek Bonds Approach Pakistan Levels on Debt Concern (Update2) - BusinessWeek
Looks like pakistan is benchmark for junk.
