Greek CDS at 25,000bps, Banks Calling for PSI

“Hello sir, this is your bank calling regarding the voluntary exchange of bonds, known as PSI exchange. Will you participate and lose 46% 54% of your bond’s value?” That is in short the phone call several private bond holders are receiving from their banks here in Greece the last days. Our country is facing default now more than ever, according to several news reports as major bond holders abort the bond swap. CDS holders need a credit event to get paid and since the new bonds’ haircut wasn’t going to be accepted as a credit event by the ISDA, a likely default will surely seal the deal. The CDS graph meanwhile has gone through the roof since the last time I talked about the Greek 5-Year CDS.


I recall several months ago when news sites here in Greece included many stories about the “spectacular” CDS climb, when they first hit 2,000 bps. We were in trouble then, things weren’t looking good. Then came the climb up to 3,000 bps. Websites and newspapers discussed about the impressive move of the CDS spread. By that time almost half of the population used the term “CDS” for the first time in their lives. Yet they had absolutely no idea what CDS actually meant, but it was made clear by the newscasters and reporters that a rise of CDS spreads is bad for the country’s economy. So, people led to believe that CDS is some kind of another economic statistic. Greeks though trusted their leaders and invested in government bonds. Fortunately I haven’t paid a single cent to buy those high risk/low reward bonds.

Some months ago Greek 5-year CDS spread climbed all the way to 10,000 bps! Not a word! No newspaper, website or even blog mentioned that rising! CDS reached 11,500bps before they came down to 7,000 when I posted the article in TradingGraphs last month. I published screeshots of the CDS graph at Facebook but no one seemed to notice. The only fact that stood out was that Panos Kammenos, a politician and Greek Parliament member who has recently announced his new party, mentioned a blog post of mine in my Greek blog (you can see that post here, although it’s in Greek). I had written that post when Papandreou had announced a referendum that eventually never took place, trying to explain to my blog’s readers what I thought was going on with CDS and default probabilities.

In the last 10 days, Greek CDS have been trending upwards, breaking the so-called resistance level of the previous high without losing any speed. Is that a sign that a default is imminent? Those who have placed their bets on Greek default are certainly happy.