Wednesday, July 26, 2017

Greece's New (Euro)Bond: Volume Too Low, Yield Too High

According to media reports, Greece successfully sold 3 BEUR new 5-year bonds which carried an interest rate of 4,375%. The bonds were offered at a small discount, thereby raising the yield to 4,620%. The issue was oversubscribed by a margin of 2:1.

Reviewing the media reports, one cannot help but get the impression that a major effort is being made to describe the issue as a great success. Was it?

Yes, the yield was slightly lower than the 4,95% yield which Greece achieved the last time it sold 5-year bonds (4,95% back in 2014). The government's conclusion is obvious: 2-1/2 years of SYRIZA governance increased Greece's creditworthiness substantially!

The yield of 4,62% is more or less the same as the yield on 5-year Icelandic paper. From that standpoint, one could argue that it is a fair yield because Iceland, too, had to overcome a major financial disaster and rebuild its creditworthiness. However, that comparison would not be appropriate for one reason: Iceland is not a Eurozone-country! As a result, Iceland does not operate with the implied support of the Eurozone.

Greece, on the other hand, operates with the implied support of the Eurozone. Even though that support was frequently severely tested since 2010, it seems fairly obvious by now that the Eurozone is not going to walk away from Greece. From that standpoint, one could consider Greece's new bonds as a Eurobond of sorts.

Germany's 5-year yield is currently a negative 0,16%. Is a yield difference of nearly 5% between Germany and Greece really justified when one considers Greece as a Eurozone risk of sorts? Definitely not! Are there any obvious reasons why the markets would not consider Greece as a Eurozone risk of sorts? Hardly! Particularly the events of 2015 have shown that the Eurozone simply does not have the backbone to walk away from Greece, even when people like Yanis Varoufakis literally defy the Eurozone to do just that.

So why was the new bond issue at such a high yield not oversubscribed by a ratio of at least 20:1? At a time when it is difficult to find First World countries yielding above 1%, why wasn't there a run on a sort of Eurozone risk Greek bond yielding 4,62%?

Less than 2 months a ago, the Greek industrial group Mytilineos raised 5-year debt at a yield of 3,1%. Why would the Greek state have to pay so much more than a Greek private borrower?

A few weeks ago, someone invited proposals on twitter at what yield Greece would issue 5-year bonds. I submitted "below 3%", thinking Greek sovereign risk would yield slightly less than Greek private risk. That's what logic would have suggested to me. That's what I would have considered a success.

The markets did not behave on the basis of my logic. There was something which the markets obviously did not like very much about this bond. Was it the timing? Or was it perhaps more doubts about the Eurozone's implied support than I would have?

It will remain the Greek government's secret why they think that borrowing from the markets at 4,62% is so much more attractive than borrowing from the Eurozone at near-zero rates. Perhaps they wanted to surprise the world with a smashing success.

A smashing success this was not!


  1. I love it when you write and intentionally behave as financially semi-illiterate.

    So you have a Samaras bad deal of a bond at 4.95% which just expired and now you have to pay it back/replace it. And it bothers you that Greece found a replacement at 4.35% at a time that Greece's long term debt issue remains unresolved and now you want to get into this disgusting political game fueled by the moronic Greek opposition of whether rolling over you debt is a success or not?

    Every state, even Austria, has the obligation to roll over its debts at lower rates if it could.

    What is this game promoted by you that this is not a success or a lesser success? This is common sense everyday management whereby if the markets offer you a better deal you take it.

    Oh, I forgot it's the effing Berlin that is talking. You guys worry again that the torture victim found an escape window at the basement and that the 3rd round torture routine which will begin again in October might be disrupted because as we all know you are following theories of austerity straight out of your ass. So Schauble worries that Greece again might have enough money to tell him to eff off. That's very nice of you to worry about such things. Suffice it to say that we will access the markets 3 more times just to effing irritate you. For that alone and our entertainment value is worth it.

    So prepare yourself with 3 more articles on the issue of Greece accessing the markets again. My proposal to the Greek government is to do it daily so that Schauble's effing head explodes with envy.

  2. Agreed Mr. Kastner,

    But for some funny reason I see an unprecedented support the Syriza Tsipras government as of late. Why is that?

    Maybe the eu leaders, want to try to shove in the minds of people the Greek problem is normalizing (not on paper of course) and soon everything will be okay. Maybe this as to cloak over the demands of the IMF as to evaluate the debt restructuring which no eu nation wants to deal with right now?

    Maybe they shoved Tsipras to do this as to create some fireworks for his own internal needs, while also giving out a lot more interest to bond holders? Which Greeks will have to pay a lot more than what troika gives us?

    Maybe it is all a bit of all of the above.

    To me though it simply makes no sense. It smells shit up to high heaven.

    Like i have said many times, our local and foreign leaders who control Greece are doing a shitty job with us.


  3. Maybe they are like 8 year old boys ... They don't like Haircuts !
    Am I right.

  4. A stampede of the herd it was not.
    The difference of the Mytilineos and Greek state yield represent the political risk Mytilineos don't carry. Bankers have dubbed it the Tsipras premium.
    The part that was rolled over was nice in as much as it carries a slightly lower yield.
    The interpretation that it shows Syriza's governance has increased Greece's creditworthiness is wrong, the market is not what it was in 2014, the German 5 year yield has dropped 1% in that period.
    Was it a good move? Short term politically, maybe. Medium and long term, no.
    Syriza has now made a benchmark and will have to prove a falling trajectory of the yield in subsequent issues, this they can only do if they toe the line at the coming third review.
    After the German elections in September the review start in earnest, this review is about all the issues that changing governments have delayed and avoided like the plague. To recap, civil servants, temporary employees, bad loans, expand the tax base, reduce pensions, arrears to private sector, bank capitalization, closed occupations, privatizations, creditor protection, strike authorizations, and the matter of the 113 prerequisites of which 95 shall be implemented by the end of the year.
    I don't think Tsipras can convince his comrades to toe the line, and they will find the market to be a stricter master than the Troika.

    1. My comment that "2-1/2 years of SYRIZA governance increased Greece's creditworthiness substantially!" was tongue in cheek, of course.

    2. Dear Herr Kleingut,

      the comparison between Mytilineos S.A. and the Greek State debt issuance shows that the market is RATIONAL and INFORMED afterall.
      Mytilineos got assets and earning power whereas the Greek State is an empty and corrupt entity, whose only earning power is through the taxation of (a narrow segment of) its population and companies. This taxation has long seized to be performing as the 90+ billion of Greek tax arrears shows.

      Furthermore, those in the Greek Government who promote market borrowing at 4.5% while the Greek economy grows at less than 1% p.a. are either economic illiterates or they are intenionally give away the nation's wealth.

    3. Lennard,


      "...expand the tax base and reduce pensions...."

      Get correct information and don't just jabber. Anyone making 500 euro a month is now taxed. Taxation constantly goes up for all groups. Likewise all property taxes.

      And ask any pensioner, how they feel after their 17th latest pension reduction in 7 years.


    4. V i dont know if you live in greece or not but obviously you are not aware of any fiscal related issues that are pending which Lennard pointed as pending measures..He was right about penions and tax that in 2019 and 2020 tax base will increase bylowering treshold to E650 so that govt makes 1% of GDP revenues pensions will be cut further or adjusted to make savings of 1% so there are further bitter pill to be taken if you are not aware.. and all this is because there is no determination to combat tax evasions..when the rich still enjoy the immunity and can not be chased due to political cost unfortunately middle class and lower are doomed to pay..believe me if the mentality continue like this we can even see 25th pension cut!!! and when you say E500 earner is being taxed I assume you meant indirect tax because me being an employee in Greece I know that you can not pay tax if you are earning E500 as current tax-free threshold is 8636 euros ie E719/month. and this amount will be lowered to E5682 in 2019 where than E500 earners will be unfortunately penalized...and I hear you regarding how pensioners feel as I am on the same boat with them, my salary been cut to 1/4 of what i was earning in 2008,,,

    5. The term "expand the tax base" comes from the IMF and everyone can guess what the IMF means. I, for one, would guess that it means (a) find more of those who should be tax payers and are not (yet); and (b) verify accurate reporting of taxable incomes. Neither of the two concerns those who are taxed at the source (wage/salary earners, pensioners, etc.). What comes to mind are the free professions, small entrepreneurs, etc.

      Regarding the taxable income exempt from taxes, Greece used to have, I believe, EUR 12.000 annually (which was high). If they plan to go to EUR 5.682 annually, that would be unduly low and could not be justified when considering the potential of (a) and (b) above. By comparison, the threshold in Germany is EUR 8.800 and in Austria EUR 11.000.

    6. Anoixi. Yes i live in Greece.

      And yes the law has been passed for 500 euro income earner per month will be taxed.

      Let's make a recap of the shity job Syriza and not only (troika) has done on expanding the tax base. And this a is a reply to both of you.

      Prior to Syriza, ND had the country on a good page from a POV for people to pay taxes, requesting receipts and declaring everything. There was a good trend on this and there were incentives to pay your taxes. Then the propaganda machine of Syriza came and fucked everything along with troika.

      Expand tax base they did.

      1. VAT 23% in almost all categories now.
      2. VAT 23% in the islands.
      3. VAT 23% for hotels. Check your figures in your respective countries. We have more tourists and we are paying double the taxes versus the 2nd highest in the eu tax rate on hotels.
      4. Highest taxes for businesses. Remember Pharmathen, your star? You shall soon find out.
      5. Businesses leave because the high taxes and insurance/pension funds.
      6. Businesses and free lancers all pay up front taxes on theoretical/forecasted year to come turnover profits. MR. KASTNER I HAVE ASKED ONCE AGAIN. WHAT OTHER WESTERN COUNTRY DOES THIS? ADVANCED TAXES ON INCOME/PROFITS TO BE MADE. How unlawful un ethical is this?
      7. All tax incentives have revoked.
      8.. I wont add anymore as i am too tired to fed up to write and write how much we pay.

      With all this over taxation, what the fck does expand the tax base mean?!?!?! On what and on who?!?!?! Everything moving is being taxed!

      Anoixi, i don't know if You live in Greece but whatever the hell Lennard is talking about fiscal related issues, as long as there is over taxation there will be over tax evasion.

      Syriza has set it up in a many ways to tax everything that walks and is almost saying "please tax evade, you know how to do it." I have said many times there will come the day when the idiots will say, well you have a lot of sun, so lets tax you on that. And it will come under some environmental cloak that we do not have enough renewable energies and as such since you don't have enough of them, you need to pay for this.

      The government of Greece and troika has lost any connection to the people. ND had some kind of realistic connection aside from their mistakes, now it is gone. No trust. no success.

      As i wrote on a previous article, people will do whatever it takes to survive.

      And for the non Greeks writing here, you all have no idea what pain people are going through. Even for the ones that are making money.

      Good Day,


    7. @V

      The next time you listen to a greek politician who promises you the earth remember that it is you - the taxpayer - who has to finance all the good things to come.

  5. @ Klaus.
    I'm well aware of the twinkle in your eye.
    A rough weighted average say that Europe's 5 year has dropped 0,75% in the period, even La Grande Republic is in negative. Investors must be desperate, it's like participating in a Dutch auction for parking space in Athens, every time you pass one the price has gone up.
    So, 4,2 would have been a break even with ND, 3,5 would have been a success and your 3,0 would have been a miracle.
    In all honesty, the "Tsipras premium is unfair, but funny, it is also a Greek premium.

  6. @ Lennart.
    NO, a 4.2% yield would not have put them par with ND, unless you are willing to ignore the 85-100 billion they squandered in the period.

  7. @ Anonymous 0733 hours.

  8. I believe Mytilineos issuance was a local one, so it cannot be directly compared with the Greece's New (Euro)Bond. In any case many conclusions can be drawn.

  9. Of cause I agree with KK that they should rather rake in some of the 90 billions in tax arrears, of cause I agree with kleingut that tax fraud should be stopped.
    I don't care what the tax free limit is in EUR in other countries. It is paramount that more than 50% of the voters pay direct income taxes, even if it should cause the apparent paradox that some at the same time receive direct social benefits. If that is not the case the majority of voters will always vote for more benefits.
    During the 5 decades of remittances, grants and loans Greece has developed a culture where people are (or pretend to be) unaware of the balance between taxes and benefits, that can only be changed by broadening the tax base. And when I say benefits it is not only the direct ones but in the broad sense including education, medical care, roads, water sewage systems etc.

    1. Lennard:

      Let me explain to you why all of your ideas/biases about(against) Greece and the Greeks are so flawed and off the mark with one word: Cyprus.

      Cyprus, or the Republic of Cyprus as it's officially known, is made up of the same Greeks who live in mainland Greece, people with the same habits and culture as the Greeks. So Cyprus is a mini-Greece.

      Everything you geniuses (aka the euromorons) have told us to do in Greece in order to get better (export orientation, taxation collection, positive current account), Cyprus has already proven you wrong. Cyprus has a consumption based economy like Greece's, exports very little, its current account is not something you want to present to your in-laws, and in all respects, Cyprus is the same Greece, especially in the profile of its economy.

      Yet Cyprus prospers, its tourism is awesome and far better than Greece's in terms of per capita spending and do you know why? Because Cyprus does not depend on some stingy German tourists who want to spend nothing and are an embarrassment to European culture. Of the 3.2 Million tourists who visited Cyprus last year (2016), 1.3 Mil. were UK tourists and 0.8 Million Russians.

      So there you have it: Cyprus is a mini-Greece but with a main attachment to the UK while Greece is a country penetrated by and with a sick attachment to Germany. Trade figures also reinforce such story because Germany is a very poor exporter to Cyprus. So here we have two identical countries Greece and Cyprus(like Germany and Austria), identical in every way except the way they are externally wired.

      What else do you want to know in order to understand that the cumulative impact of Greece's misfortune is evil Berlin which by its very existence provides the antithetical meaning of that of Athens?

      Shall I explain it to you in historical terms? Greece is in the bad condition that is in right now because it has chosen the wrong European connections. Mini-Greece, Cyprus, is flourishing, despite all adversities thrown to her, because it has the right Europea connection called Great Britain.

      Hello, the light is on but nobody's home! Are you there?

    2. I am really not familiar with the Cypriot situation but based on your description I would conclude that the Cypriot Greeks are more astute than the Greek Greeks.

    3. Kleingut:

      You don't have to be personally familiar with the Cyprus situation. You have access to, right? So compare Cyprus to Greece and please tell us how Cyprus does it eventhough its public sector is as big as the Greek one.

    4. Very scientific answer Kleingut. So there is a secret ingredient only found in the waters of Cyprus. This explains everything.

  10. @ V.
    I don't really care if you pay 30% VAT or whatever. The Troika asked the various Greek governments to achieve a balance between income and expenses, or taxes and benefits if you prefer. I assume we can agree it is a reasonable request?
    It was left to the Greek democratic governments to achieve it at their discretion. If you feel the present government has been hard on you then let me remind you it was elected with great enthusiasm, even by you. The main reason for its election was its promises to make European citizens pay Greek citizens debt, and in the future make European voters pay for Greek voters deficit. Pray tell me how you reconcile such a policy with democracy or fairness.

    1. Another display of ignorance and IQ deficit on your part.

      So the stupid Greek people, as part of fair and free elections, voted in the least likely to succeed Greek political party with great enthusiasm.

      And apparently such act had nothing to do with the European plan of having to pay back French and German banks for their losses by pretending to give money to Greece with 95% of such money redirected to rescue said banks.

      This is the part Greeks were enthusiastic about it because apparently Greeks are stupid even more stupid than you are.

      Any other fairy tales circulating in your neighborhood?

      Maybe we should collect them in a little book for pre K students before they are lost in effing german folklore and teutonic idiocy.

  11. Non story.

    Greece issued a small amount of bonds. Greek government brags about "the return to the markets", the Eurozone brags about how the times they are a-changin', rational observers observe that the more things change the more they stay the same.

    Move on.

    1. No, I think you got it wrong. It's the unintelligent Greek opposition, otherwise known as the Berlin idiots, who can't stomach that the bird has flown.

  12. I have previously described my observations of Greeks position when they negate an opinion in discussions. The position when defending their own is as predictable. It goes along these lines, "no educated,intelligent,democratic,antifascist,patriot can deny the indisputable fact that---------". Or in a less subtle way, people who disagree with me are idiots.

    1. @ Lennard:

      Spot on (as far as I can tell from the discussions here at kk’s blog). So sad that they don’t recognize that time after time they come accross as Europes village idiots by reacting in this predictable and childish way.

  13. The below article states that the average junk bond yield is currently 2,42%. Against that background, for Greece to accept a yield of 4,63% sounds ridiculously high.

  14. We have now narrowed the frame of Greek "short term politics" to "less than a month".
    At July 26, Greek 5 year bonds traded at a yield of 4,47, today at 4,65. And it's not just a freak number; the corresponding figures for 10 year bonds are 5,25 and 5,57.
    A falling trajectory it's not, and that is before the third review has started.