Greece calmly watches the “bloodshed” of the bonds

of Chrysostomos Tsoufis

If what is happening in the last few days with bond yields, which are skyrocketing, can be characterized as a blood-soaked epic film – of the kind that Hollywood loved so much in the 90s and filled the cinemas – then the Greek side is somewhere among the spectators, watching with interest, but without much concern.

A mix of anxiety over impending rate hikes, fear of a recession combined with political and geopolitical developments (Italian elections, Baltic pipeline ‘sabotage’) are driving up bond yields.

The yield on the Greek 10-year bond hit 5.06% yesterday, going back to 2017. On August 2nd, it was at 2.86%, a 77% increase in almost 2 months.

Italian bonds hit a 9-year high and German bonds hit an 11-year high. Within 4 meetings, the British 10-year bond rose more than 123 basis points, erasing according to analysts 1 trillion dollars of the money of the insurance funds that had invested in them.

And the Bank of England had to indulge in a massive purchase of British debt for yields to fall. But with inflation persisting, the central bank’s aggressive rate hike strategy is out of the question.

Christine Lagarde’s statements from Frankfurt are typical that “we will continue to raise interest rates for the next several councils.

And while some are anxious over their screens, in Athens there is relative calm.

“Greece is not heard, it is not part of the negative news” we were told by the officials of ODDIX.

Also the country has a huge liquidity “cushion” of almost 38 billion euros, which can potentially keep it out of the markets for a long time – not that this is expected to happen. Furthermore the overwhelming majority of the debt is to the ESM at a very low interest rate.

That’s why, and once this yield volatility stops – which is what worries ODDIX the most – the organization will continue its issuing activity, perhaps with a 10-year bond.

After all, since the beginning of the year it has already borrowed 7 billion euros out of the 12 billion euros foreseen in the publishing program for this year.

What adds another ton of security to the future movements of the ODDIX is that it has “hedges” – that is, it has secured through swaps the 53 billion euros of debt in bilateral loans – so that it has much smaller losses in cases of interest rate increases.

So if e.g. in the next bond issue, the country ends up borrowing relatively expensively, it could close some of these swaps, mitigating the cost.

Beyond all this there is the ECB’s umbrella, the new TPI support mechanism, which was created precisely to protect states whose borrowing costs rise violently through no fault of their own.

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