Saturday, January 6, 2018

Greek Bonds Continue Massive Rally

Greek Government bonds continued their rally into the first week of the 2018.  The benchmark 10-year bond now yields 3.75%, the lowest since March 2006.  It was at 8% a year ago.
 The star of the market is unquestionably the short end, with the 2-year going from 10% to 1.45%, a massive 85% drop.  It now yields even less than the latest 6-month bill auctioned just four days ago at 1.65%!

I will note, once again, that this is far below the 3.5% interest rate charged by the IMF for its 11-12 billion euro loans to Greece, which have an average weighted maturity around 2.5 years. (From this perspective, Greece should arrange to immediately repay the IMF.)

Markets now discount a rapid return to normalcy for the country, driving credit default swap (CDS) premiums to 338 bp, down from nearly 1,000 a year ago.



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