With the heat on Greece reaching a tipping point, there is a high likelihood that something concrete out of the IMF and EU is imminent in terms of being more detailed on exactly the help Greece will get if they reach out for it. A key detail is what rate will they get to borrow at, the current punitive level or a lower subsidized one. The Greek 10 yr yield has fallen about 20 bps just over the past hour and are lower by 26 bps on the day to 7.10%, down from the intraday high of 7.51% yesterday. The 2 yr yield is back below the 10 yr at 6.93%, down 44 bps on the day and was as much as 50 bps above the 10yr yesterday.

Category: MacroNotes

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One Response to “Greek bonds rallying”

  1. johnhaskell says:

    I’m sorry, I missed the part where you explain why it’s “punitive” for Greece to pay 7% on its borrowings.

    It’s now known to everyone that Greece can stay current on its borrowings only if a) it pays 3% on what it borrows; b) the markets are continuously and always open to it.

    Sort of like AIG, which was solvent so long as it maintained its AAA rating; as soon as it lost its AAA rating it jumped to default.

    Would you lend to a borrower that would “jump to default” as soon as you and other lenders stopped lending it money to make interest payments? Would you lend that money at 3%?