Sunday, March 25, 2012

The new Greek yield curve

The Greek PSI (new) bonds are now actively quoted. Prices vary with maturities - roughly between €17 and €25 (17 to 25 cents on the euro). Here are the latest mid quotes by maturity.

Latest quotes on Greek PSI bonds

Using Bloomberg these can be converted to yield, producing the following yield curve. This is a unique sovereign curve even for a distressed name because it starts in 2024, with nothing actively quoted prior to that.

The new (post-PSI) Greek yield curve (Y-axis = yield in %)

It is naturally an inverted curve that is pricing in a significant probability of a second default. Depending on the recovery assumptions, the probability of default priced into these bonds in the next 10 years is near certain (the higher the recovery assumption, the higher the implied default probability). Being subordinated to the EU/IMF rescue loans, these bonds don't stand to recover much the next time around.
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