Well, the investors do not really rush to Greece by car or plane. But via their monitors and telephones. What madness. As if there were no risk anymore. Yes, it really is. Greece bankrupt? Overindebted? Yes, actually still, but who cares? A recent article in the “Investment Week” seems to reflect the current mood in the bond market. New government in Athens, some economic growth, calm situation, everything is good. It’s also worth mentioning that Greece has a de facto permanent blank cheque in its pocket after the great rescue efforts by its European partners. Greece’s debts are all still there. If Greece were again in a state of imbalance and faced with national bankruptcy, the Euro partners would have to bail them out again. Alternatively, they would have to waive their accounting claims (old debts). It is therefore highly probable that they would save again.
So where’s the risk for the bond buyers? In addition, we can assume that some of the investors currently flowing into Greek bonds are not too interested in yields, but in price gains. As yields rise, prices fall, and vice versa. The yield on ten-year Greek government bonds currently stands at 1.30% on the free market. The chart, which goes back to 1999, shows the current all-time low and the peak from 2012. The Greek yield continues to fall!
Just a few days ago, the Greek debt agency PDMA issued 10-year government bonds for the government in Athens. The details show that with an offer volume of 1.5 billion Euros, investor demand was 5.4 billion Euros. That is almost four times as much demand as supply. This shows the massive run on Greek bonds. As I said before, the main interest in price gains is likely to continue. This is because people obviously believe that yields will continue to fall. But even the yield-oriented investor is still doing much better at 1.5% (an understatement) than if you had just bought German ten-year-runners. The issue yield there four weeks ago was -0.61%. Yes, a hefty negative yield!
The details of the Greek issue show, by the way, that 49% of the buyers came from Great Britain and that 63% of the purchase volume came from funds. Of course this is understandable. London is the No. 1 financial centre, and in front of the screens in the “City” sits the capital that is looking for returns or price gains. So, everyone off to Greece? Because obviously everything is wonderful at the bottom of the Acropolis again?