Forex Flash: And the buy back begins – Nomura
FXstreet.com (Barcelona) - The Nomura economics team have noted articles across Europe covering the official invitation for the Greek debt buy back which has been issued today. They note that the offer is better than their Friday expectations for a variety of reasons.
1) It sets a maximum in terms of prices and constrains the resources to EUR 10bln. They note that this avoids price/participation equilibriums at much higher prices. 2) It offers a generous premium upfront of 4-6c higher compared with the GGB strip as of 23rd November that was indicated by the Eurogroup as an indicative maximum price. 3) The risk of proration give (1) might incentivise more hedge fund bondholders to participate upfront. Assuming a 'captive' participation of close to EUR 20bln (Greek/Cypriot and EU State Banks), the residual of achieving another EUR 8bln from hedge funds at the 34% price seems a reasonable and likely outcome.
Elsewhere, they note that over the weekend in an interview with the German newspaper Bild, Angela Merkel opened up for the first time about the possibility that Germany could accept a haircut on its loans to Greece, once Greece is able to generate sufficient revenues to finance itself. They believe that this declaration underpins the decision to Greece in the Euro at a cost to the tax payer, recognising that such a possibility would be less damaging than allowing an exit from the monetary union.
They note that in the interview, Merkel recognised that Germany is one of the main beneficiaries of the common currency. According to the FT, Mekel stressed that any haircut was not going to happen before 2014-15, even if Greece's adjustment was on track. The team notes that the FT comment that Berlin is worried about having to take losses on its loans to Greece before September's election as the opposition could use this against Ms Merkel in the election campaign. They finish by noting that at the same time, government officials acknowledge that Greece's problems remain so big that pretending otherwise would be untenable.
1) It sets a maximum in terms of prices and constrains the resources to EUR 10bln. They note that this avoids price/participation equilibriums at much higher prices. 2) It offers a generous premium upfront of 4-6c higher compared with the GGB strip as of 23rd November that was indicated by the Eurogroup as an indicative maximum price. 3) The risk of proration give (1) might incentivise more hedge fund bondholders to participate upfront. Assuming a 'captive' participation of close to EUR 20bln (Greek/Cypriot and EU State Banks), the residual of achieving another EUR 8bln from hedge funds at the 34% price seems a reasonable and likely outcome.
Elsewhere, they note that over the weekend in an interview with the German newspaper Bild, Angela Merkel opened up for the first time about the possibility that Germany could accept a haircut on its loans to Greece, once Greece is able to generate sufficient revenues to finance itself. They believe that this declaration underpins the decision to Greece in the Euro at a cost to the tax payer, recognising that such a possibility would be less damaging than allowing an exit from the monetary union.
They note that in the interview, Merkel recognised that Germany is one of the main beneficiaries of the common currency. According to the FT, Mekel stressed that any haircut was not going to happen before 2014-15, even if Greece's adjustment was on track. The team notes that the FT comment that Berlin is worried about having to take losses on its loans to Greece before September's election as the opposition could use this against Ms Merkel in the election campaign. They finish by noting that at the same time, government officials acknowledge that Greece's problems remain so big that pretending otherwise would be untenable.
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