Greece Begins Buyback as Merkel Floats Writeoff Prospect
Comment of the Day

December 03 2012

Commentary by Eoin Treacy

Greece Begins Buyback as Merkel Floats Writeoff Prospect

This article by Maria Petrakis and Emma Charlton for Bloomberg may be of interest to subscribers. Here is a section:
Greece offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as the bailed-out nation attempts to cut a debt load that may threaten future international aid.

Greek bonds rallied after the so-called modified Dutch auction was announced today by the Athens-based Public Debt Management Agency. The prices offered for bonds maturing from 2023 to 2042 averaged 33.1 percent of face value, based on information in a statement from the debt agency today, higher than euro-area finance ministers indicated would be paid. The offer runs until 5 p.m. London time on Dec. 7.

Success is crucial to releasing aid that's been frozen since June. The offer was part of a package of measures approved by the finance ministers last week to cut the nation's debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014. The 10 billion-euro buyback may enable Greece to retire about 30 billion euros of debt, Citigroup strategist Valentin Marinov wrote in a comment.

The average price “is higher than previously published or announced,” said Spyros Politis, chief executive officer of Athens-based TT-ELTA AEDAK, which oversees about 300 million euros of assets and owns Greek government debt. “At the moment it looks as if it will be successful, or if they miss the target, they will miss it by a small margin. Anything that reduces the overall debt burden is good.”

Eoin Treacy's view Many investors consider the way in which the Eurozone has dealt with its sovereign debt problems as unpalatable and would have preferred a cleaner, more concise approach. Nevertheless, as the ECB makes additional liquidity available, the banking sector is slowly bailed out and the prospect of further fiscal integration remains probable, we can conclude that it is now more appropriate to speak of Europe in terms of convalescence than crisis.

Greek 10-year yields continue to trend lower and a break in the progression of lower rally highs, currently near 18.5% would be required to question potential for further compression.

The Greek stock market Index rallied impressively from the May lows and has been ranging above the 200-day MA since October. A sustained move below 740 would now be required to question medium-term scope for additional higher to lateral ranging.

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