The Corner

All Sorted Out Then?

Via the Financial Times:

 Greece’s new bonds, issued after its €206bn debt exchange, started trading on Monday at distressed levels, indicating that investors fear another restructuring is probable. A series of 20 bonds with maturities of 11 to 30 years began trading and were quoted with prices of between 23 and 26.5 cents in the euro, a slight rise from Friday’s grey market.

 Greece’s yield curve is still inverted with the 11-year bond yielding about 18.1 per cent and the 30-year bond 13.4 per cent, meaning investors are braced for more distress. The new yields are the highest in the eurozone, ahead of Portugal, the country considered most likely to follow Greece in needing a second bailout.

 Most investors remain deeply sceptical of Greece and the sustainability of its debt despite Athens shaving off €100bn, or nearly a third, from its debt burden in last week’s successful bond swap.

 Strategists expect to see a wave of selling in the coming weeks, particularly as banks that committed as long ago as July to take part in the swap are finally able to cut their exposure to Greece.

 “The tone for the first week or two is likely to test the downside first,” said Mark Schofield, global head of interest rate strategy at Citi.

 But he, and some other strategists, believe the new bonds could prove appealing to some investors.

 Mr Schofield points to two types in particular: Greek institutions who will take a bet that they will get repaid in full, and banks and insurers who for accounting reasons will be unwilling to book all their losses on the bonds. “It is not all one way,” he added.

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