Greece: Default or Yield Choice

Greece, which hasn’t had a government for more than a week and whose 10-year debt yields more than 27 percent, decides today whether to pay 436 million euros ($562 million) to bondholders who shunned last month’s debt swap.

A floating-rate note sold a decade ago by Europe’s most- indebted nation matures today. Repaying the security would disadvantage investors who took losses in the bond exchange and voters facing spending cuts. Reneging on the obligation also would constitute a default, triggering derivatives contracts and clauses requiring the settlement of other unswapped bonds. Meantime, the country has no government to make the choice.

“The political vacuum means it’s very difficult for the interim government to take what are essentially political decisions about burden-sharing,” said Myles Bradshaw at Pacific Investment Management Co. in London, manager of the world’s biggest fixed-income fund. “It would be very difficult for Greece to pay bondholders and then turn around and say they’re cutting pensions to pay the bonds.”

Reuters reported today that the bond will be paid, citing an official it didn’t name. Talks between Greece’s main parties following the May 6 elections failed to reach agreement on forming a coalition, paving the way for a second election next month. It’s possible no government will be in place until at least July. The Syriza party led by 37 year-old Alexis Tsipras, who favors defaulting and an end to economic austerity, placed second in the elections with 16.8 percent of votes. The group is ahead in current polls.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell