Greek government bonds

The Wall Street Journal says the following today:

"What does Greece have to do to get a little credit from investors? Greek bonds, while off their lows, showed virtually no reaction to recent praise dished out by the International Monetary Fund. A combination of illiquidity, technical factors and binary valuation arguments are stifling the market.

"This is despite seemingly juicy returns on offer. The 30-year Greek bond hit a low on June 23 at 47% of face value, according to Tradeweb, offering a chunky 10.4% yield. The small rise since then, to 56% of face value, translates to an 18.5% capital gain. Even bonds maturing in three or four years yield 10% to 11%.

"There are good reasons, though, for the lack of action. First, for many investors, Greece is off-limits: Ratings downgrades have removed it from key European bond indexes, but it doesn't qualify to join emerging-markets indexes.

"Second, the market is illiquid. Trading volume on Greece's HDAT electronic platform was just €1.6 billion ($2.13 billion) in June, down from €27.8 billion a year earlier, according to the Bank of Greece. Buyers may fear pent-up selling pressure from banks still holding Greek debt.

"And third, shorter-dated bonds trading at prices of 70% to 80% of face value mightn't be attractive enough if an investor fears a debt restructuring. While there are good arguments that a restructuring wouldn't make sense and Greek officials rule it out, investors are concerned by the scale of potential write-offs if a default occurred, given the debt-to-GDP ratio of 130% or more.

"Niche funds with strong risk appetite may be able to take advantage. But the big money will stay away for some time yet."

Comment: I am reminded of the saying of Hecataeus of Miletus, ca. 500 BC: “What I write here is an account that I believe to be true. For the stories told by the Greeks are many and in my opinion ridiculous.”