Greece Needs to Raise $27 billion in the next 60 days

We will see if the IMF/EU assistance, loan guarantee, moral support, or whatever they are calling it these days (but don't call it a bailout--Greece does not need and will never need a bailout so say the EU elite) soothed market concerns regarding Greece's fiscal position. From the look at the current yield on Greece's 10year bonds, all is not well with Greece still having to pay over 6%. While most market observers would agree that 6% is a pretty good rate for a bankrupt state like Greece, the Greek government is still outraged. After all, the Greek government believes it is their god given right to borrow at the same rate as the Germans. Furthermore, the Greek government postulates that the increased interest rate it is being forced to pay is going to prevent them from achieving their budget cuts announced last month.

The real question is how will the market receive the bond issue? Some have said that Greece could face a failed auction. I doubt it. The most likely scenario is a private placement where the Greek government makes sure they will be able to borrow the required $7 in April and $20 billion in May. This could be done with the help of a few German and French banks participating. This is not a new idea and the Greek's have done it before. So don't count on a failed auction, but I would be surprised if Greece was able to borrow under 6%.

If you are looking for an interesting trade you might want to consider shorting Greek sovereign credit while going long Greek corporates (stay a way from banks though). I have heard that this is a popular trade being put on by hedge funds.

Black Swan Insights


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