(This guest post comes courtesy of the author’s blog)
The country’s debt plunged this week and credit protection costs widened substantially amid continued market worries about the state of its budget deficit, the deposit situation at its banks, and its ability to price debt in the market (both peaked early Thurs morning).
Yields on 10yr Greek debt spiked from ~6.5% last Fri all the way to ~7.35% on Thurs before pulling back (they were being quoted at ~7.1% as of mid-day today). CDS had widened all the way out to ~475bp early Thurs on 5yr protection (vs. 344bp last Fri) before tightening back to ~433bp as of mid-day on Fri.
Reports started to surface late on Thurs/early on Fri that the meaningful weakness in Greek debt this week will prompt the joint EU-IMF rescue framework to be activated as early as this weekend.
Reuters reported that Eurozone finance ministers and senior central bankers have reached an agreement on terms of a possible rescue package for Greece (according to Reuters, Greece will be charged the SDR rate +300bp w/an extra 50bp service charge on debt).
Bloomberg said the ECB will be holding a governing teleconference Fri evening to discuss the latest on Greece (the ECB held a regularly scheduled meeting on Thurs and Trichet didn’t offer too much incremental on Greece other than to reiterate that he didn’t think the country would default on its debt).
A separate DJ article said deposit levels at Greek banks have started to stabilise.
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