To all,
A recent post on Bloomberg indicates that yields on the new bonds may be in the range of 20% over time due to continued material risks. This according to Morgan Stanley. While the market is sensing some relief at the prospect of a debt exchange, the yields in the grey market are telling me that Greece is going to be looked at as a country in serious "junk" status.
This does help Greece to some extent although they are still tied to the Euro. This is not good for a country that has been super uncompetitive tied to a strong currency.
The debt exchange without official default helps the banks and once this episode is passed the fundamental problems will resurface. Without a competitive economy they will have much difficulty in attaining austerity measures.
Interestingly, the not so obvious issue to watch is that of the CDS(Credit Default Swap) market. The validity of this insurance market is being called into question as investors who bought insurance feel as though(rightly) that they paid for nothing. Let's look at the final numbers and see if they need to invoke the Collective Action Clause which would trigger payouts on the CDS contracts. That could pressure the financial sector and set a precedent for other countries likely to go the route of Greece.
Tom Koehler, CFA