My friend Peter Boockvar illustrates an incredible example of what he calls the “power of central banks” on the eve of Greece’s first public debt auction in years:
It was July 26th 2012 when ECB President Mario Draghi said “Within our mandate the ECB is ready to do whatever it takes to preserve the euro and believe me, it will be enough.” The day before the 10 yr yield in Greece was 27.63%. Today it’s at 6.05% and Greece will try to sell about 2b euros of 5 year paper tomorrow at a yield likely around 5.35%. This would be the first time since 2010 that Greece will publicly sell debt and they have a credit rating of B- from S&P and Caa3 from Moody’s. The yield of 5.3-5.4% compares with the US high yield KDP index which has a yield of 5.25%, only about 40 bps from a record low. Greece has a debt to GDP ratio of about 175% with 5 yr CDS priced at around the level of Cyprus, Egypt and Lebanon in the 400 bps range. The power of central banks, with both their actual weapon of altering policy and mostly with the ECB in using just words, is on full display with Greece’s debt deal and the enormous demand for yield.
Managing Director and Chief Market Analyst
The Lindsey Group LLC