Deliberations between Greece and Troika Continue as Agreement is Imminent

Talks continue between Greece and its creditors so that it may receive the 2 billion euros, provided it meets certain conditions. The markets have already absorbed the imminent agreement as the bond market increased and the cost of borrowing (interest rates) decreased. The World Bank also announced its interest to buy Greek bonds.

Government benchmark bond prices and yields⁽¹⁾

Last 30 trading days Date Maturity (Years) 3 Price Yield % 5 Price Yield % 10 Price Yield % 15 Price Yield % 20 Price Yield % 30 Price Yield % 12/11/2015 94.00 7.31 92.26 7.38 74.00 7.51 66.95 7.57 61.25 7.71 60.00 7.33 11/11/2015 93.75 7.46 92.44 7.31 73.92 7.52 66.25 7.67 60.85 7.76 59.35 7.40 10/11/2015 93.30 7.77 91.65 7.59 72.50 7.78 65.80 7.74 60.50 7.81 59.00 7.45 09/11/2015 93.50 7.62 91.60 7.61 72.80 7.72 65.90 7.72 60.05 7.87 58.88 7.46 06/11/2015 93.50 7.62 92.50 7.28 72.60 7.76 65.75 7.74 60.80 7.77 59.40 7.40 05/11/2015 93.25 7.78 91.95 7.48 72.25 7.82 65.65 7.76 61.10 7.73 59.54 7.38 04/11/2015 93.18 7.81 92.03 7.44 72.50 7.77 65.65 7.75 61.00 7.74 59.34 7.40 03/11/2015 92.40 8.34 91.30 7.70 72.20 7.83 64.50 7.93 59.70 7.92 58.80 7.47 02/11/2015 91.65 8.86 90.55 7.97 71.55 7.95 65.25 7.81 60.55 7.80 58.90 7.46 30/10/2015 92.40 8.33 91.40 7.66 71.90 7.88 64.60 7.91 60.20 7.85 59.45 7.39 29/10/2015 92.00 8.60 91.09 7.77 72.00 7.86 65.00 7.85 61.00 7.74 59.35 7.40 27/10/2015 92.41 8.28 91.35 7.67 72.50 7.76 65.50 7.77 61.86 7.62 60.45 7.26 26/10/2015 93.30 7.67 92.25 7.35 73.00 7.67 66.10 7.68 62.15 7.58 60.65 7.24 23/10/2015 93.40 7.59 92.80 7.15 73.30 7.61 66.45 7.63 62.50 7.53 61.17 7.18 22/10/2015 92.75 8.03 92.00 7.43 72.75 7.71 65.96 7.70 61.44 7.67 60.33 7.28 21/10/2015 91.55 8.83 91.85 7.48 73.25 7.61 65.55 7.76 61.84 7.61 61.00 7.19 20/10/2015 92.00 8.51 91.75 7.51 73.50 7.57 66.15 7.67 62.25 7.56 61.40 7.15 19/10/2015 92.75 7.99 91.80 7.49 73.35 7.59 66.35 7.64 62.46 7.53 61.50 7.13 16/10/2015 90.85 9.29 89.18 8.44 71.85 7.87 64.50 7.92 60.91 7.74 59.99 7.31 15/10/2015 90.33 9.65 88.57 8.66 71.75 7.89 64.40 7.93 60.46 7.80 59.21 7.41 14/10/2015 89.70 10.06 87.95 8.89 71.40 7.95 64.50 7.91 60.61 7.78 59.47 7.38 13/10/2015 89.99 9.85 88.96 8.51 71.50 7.93 64.15 7.97 60.25 7.83 59.75 7.34 12/10/2015 90.46 9.51 89.07 8.46 72.60 7.72 64.25 7.95 61.40 7.67 60.09 7.30 09/10/2015 90.54 9.44 89.17 8.42 72.00 7.83 65.25 7.80 61.20 7.70 60.35 7.27 08/10/2015 90.94 9.16 89.80 8.19 72.50 7.74 67.10 7.52 61.95 7.59 61.15 7.17 07/10/2015 90.80 9.23 89.95 8.13 72.27 7.78 66.08 7.67 62.25 7.55 62.00 7.07 06/10/2015 90.00 9.77 88.58 8.63 71.90 7.84 65.14 7.81 60.70 7.76 59.97 7.31 05/10/2015 89.50 10.11 87.65 8.97 71.25 7.97 63.40 8.08 58.75 8.04 57.72 7.59 02/10/2015 89.75 9.92 87.95 8.86 71.00 8.01 63.29 8.09 58.96 8.01 58.03 7.55 01/10/2015 89.45 10.12 87.73 8.93 69.75 8.25 62.98 8.14 58.70 8.04 57.80 7.58 Monthly average prices and yields October 2015 91.18 9.04 90.04 8.12 72.16 7.81 65.08 7.83 61.04 7.72 60.04 7.31 September 2015 87.76 11.13 85.40 9.76 68.16 8.54 61.77 8.33 56.49 8.36 55.41 7.89 August 2015 81.63 15.29 76.86 13.21 60.08 10.26 54.23 9.65 50.81 9.29 49.96 8.70 July 2015 June 2015 67.91 25.02 67.16 17.15 54.63 11.43 50.33 10.35 49.40 9.49 49.13 8.79 May 2015 71.03 21.52 70.15 15.49 56.25 10.95 52.35 9.89 51.82 9.03 51.91 8.33 April 2015 67.20 23.98 66.51 17.01 51.91 12.01 47.38 10.91 46.56 9.98 46.43 9.21 March 2015 74.01 18.11 71.31 14.62 57.63 10.52 52.31 9.85 51.75 9.01 51.66 8.35 February 2015 75.03 16.84 72.73 13.82 60.91 9.72 53.63 9.55 52.33 8.89 52.35 8.23 January 2015 81.24 12.68 80.00 10.92 62.48 9.48 54.24 9.48 53.15 8.76 52.78 8.14

(1) The bond prices given are the clean prices per €100 nominal, while the respective yields are expressed in percentages.

The above table is a source from the Bank of Greece

From the table we can see the monthly average bond yields. On September 2015 bonds with three year maturity yielded 11.13%, and one month later, on October 2015, the yield for the three year bond was down to 9.04%.

 

In addition, the projection for recession was estimated at -0.5% as opposed to -3.5%, and the Treasury reported a budget surplus due to the positive response from the tax payers with the home tax. Of course the government has declared a stop payment to its creditors (2 billion euros owed).

The gaps that separate the two parties seems to be bridged as the crucial point with the bad loans has been resolved. An agreement in principle is imminent because behind the scenes there were pressures from foreign funds in order for them to participate in the open offerings (increase in share capital) of the four systemic Greek banks. The degree of success of the banks’ recapitalization will depend upon the ability of the banks to attract new investors, as well as the bad loans.

Creditors demand income criteria and home assessment value with respect to bad loans. Reports say income criteria of 20000 – 30000 euros per year, coupled with an assessment home value of about 160,000 to 180,000 in order for not to proceed with home auctions of mortgage owners. This is a tough issue and it seems that the Greek government will propose a three year grace period, after which home auctions will be completely free from legal protection.

 There is also an agreement in the prices of generic drugs (cheaper but offer the same quality of medical treatment), and an agreement with the 100 installment payments for those that owe to the Treasury.

Creditors insist that anyone in the program of 100 installments be excluded if they miss even one payment due. Reports say that the value added tax was recalled for private schools, and creditors have accepted a tax on lucky games.

Finally distressed funds are also interested in the participation of the bank recapitalization. They are applying their pressure and request in return, to buy bad loans, and in particular, business loans. In my previous article I wrote how these distress funds want to have a share in owners’ equity, so as to have control of large Greek corporations of strategic interest..