To describe the Greek deal I was going to say ‘further kicking of the can’ but I don’t think this quite describes it, it’s more a situation of picking it up and putting it in a cannon. The issue seems far from solved. There is a lot of friction as the private sector (obviously) doesn’t want to take a larger haircut than the 50% that was agreed at the Euro zone summit in October or want a bigger coupon on the bonds they will receive in exchange. It has surfaced that some funds bought a big chunk of the bonds that are maturing on then 20th March; it is in their interest to drag their feet as much as possible so that they can stall any deal so that Greece have to pay the full face value of the bonds. These funds are assuming that the EU will have saved Greece from a default at this point.
The Bunds have shrugged off the surprisingly good data out the US on Friday; despite a strong sell off we have regained a lot of lost ground. The fact that this has happened proves there are investors looking for safe investments. However, a move through 138.13 should target the 2% yield level once again but if this holds there is a good chance we will see the all time highs in the near future.
Guru’s thoughts: I think that Friday’s move lower cleaned the market out a bit and has shaken out a few dusty old longs and attracted new interest. I believe we will be touching the 1.636% at some point in the near future.
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