Talk of haircut keeps growing
A haircut of Greek debt is unavoidable, and lenders over the long run should be involved in a partial restructuring of the debt, a senior German lawmaker said on Thursday as concerns over Europe?s debt crisis pushed Greek bond yields wider.
Norbert Barthle, the budgetary speaker for the governing Christian Democrats, told Dow Jones Newswires that the bailout fund for troubled eurozone countries doesn?t necessarily need to have a triple-A rating, while German Chancellor Angela Merkel should maintain a tough stance in negotiations about possible changes to the fund.
?I don?t see another chance for Greece than a haircut,? Barthle said. ?Otherwise, they won?t succeed [in] getting out of their deficit.?
A haircut is the difference between the market value of a security and the amount of money a lender will advance against it; the lender keeps the difference as insurance against a decline in the collateral value of the instrument.
Earlier this week, a leading Brussels think tank told Kathimerini English Edition that it has recommended that Greece restructure its public debt as soon as possible, and that this should be one of the main elements of a comprehensive response to the eurozone crisis to be agreed by European Union leaders when they meet next month.
Meanwhile, the yield on Greek 10-year bonds gained 15 basis points to 11.41 percent on Thursday, driving the yield difference, or spread, versus similar-maturity bunds 16 basis points wider to 812 basis points, the most since January 31.
Portugal?s 10-year bond yield also rose as investors are disappointed with the slow pace of progress in EU efforts to coordinate measures against a crisis that is more than a year old.
ING Group said on Thursday that Greek government bonds may provide greater returns than German securities, even with a reduction in payments to investors and an extension of debt maturities, based on current prices.
In a scenario with a 20 percent reduction in payments, or ?haircut,? and with maturities extended by three years, ?all Greek securities are able to deliver higher yields than German government bonds,? Alessandro Giansanti, a senior rates strategist in Amsterdam, told Bloomberg.
