Greek PSI Terms Leaked; Imply Greek Redefault Within 2 Years

Greek PSI Terms Leaked; Imply Greek Redefault Within 2 Years


The first details of the Greek bond deal are leaking out via Reuters, and we now learn the reason for the Greek bond sell off in recent days:
UNDER GREEK DEBT SWAP, PRIVATE SECTOR WILL GET 3% COUPON ON BONDS FROM 2012-20, 3.75% COUPON FROM 2021 ONWARDS [2021... LOL]
PRIVATE SECTOR WILL ALSO GET A GDP-LINKED ADDITIONAL PAYMENT, CAPPED AT 1 PCT OF THE OUTSTANDING AMOUNT OF NEW BONDS
GREEK BANK RECAPITALISATION NEEDS MAY NOW BE AS MUCH AS 50 BLN EUROS-DEBT SUSTAINABILITY ANALYSIS

Which in turn explains the sell off in pre-petition Greek junior triple subordinated bonds (i.e., those held by private unconnected investors, which are subordinated to the Troika, to the ECB, to the Public Sector and to UK-law bonds in that order). With the EFSF Bill "sweetener" amounting to about 15 cents (and likely less), the fact that bondholders will receive a 3% cash coupon, a cash on cash return based on Greek bonds of 2015 trading at just 20.7 cents on the euro, indicates that investors are expecting to collect 1 cash coupon payment, and at absolute best 2, before redefault, as buying a 2015 bond now at 20.6% yields a full cash return of 21% (15%+3%+3%), thus the third coupon payment is unlike to come. And since there is a substantial upside risk premium kicker to bond buyers,so in reality the investing market is saying that Greece will last at best about a year following the debt exchange (if it ever even happens) before the country redefaults.