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Financial paradoxes. The greek bond that expires in 60 days and offers a “return” of 1,100%

It is the bond of the moment. What they are talking about representatives of the European Union, International Monetary Fund and European Central Bank, in an attempt to seek agreement on a new rescue Greece. We refer to bonds maturing March 20, 2012. Codename GR0110021236. Worth 14.4 billion euros. But Athens, without saving (and cutting the value of the refund with loss to creditors) does not seem able to honor (even partially) the debt.

Well, looking at the graphics performance is a leap to the heart. Today, the shares closed at a price (which moves in the opposite direction to the yield) of 37.86, which corresponds to a yield of 1,104% (see graph). A month ago price 47.6 (467% yield). A year ago, when there was no talk of haircuts (cut the value of the refund as a result of greek debt restructuring) the same bond was pricing around 13%, more or less now make the bonds of Portugal (which with Greece and Ireland has resorted to forced bailouts imposed by the EU-ECB-IMF).

What does this mean? The performance of the bond that summarizes greek – albeit not yet been formally found a definitive agreement sull'haircut (the% of loss to be attributed to private creditors, bond holders) there is no doubt that before the natural expiration of the obligation , March 20 in fact, an agreement will be found. The price variation indicates, however, that if up to a month ago was the most likely hypothesis of a 50% cut on the value of Greek bonds, now goes to a stronger cut, in the orbit of 65-70% .

This means, reading the data on the yield, the rate of 1,104% is totally unrealistic because it requires a repayment at par (100) of a bond which should instead be subject to restructuring (which is still a default level).

It's just a matter of understanding, at this point, if that Greece will be ordained a default (or an agreement "peaceful" is on short-term bonds than on medium-term rescheduling should be) or if a default will be messy. Hypothesis, however, both the public and the institutions of private creditors would not like it because it might trigger an immediate contagion to other European countries "shaky", Portugal in the first place.