Greek Debt Swap – Very Interesting Trade

Investors should be looking carefully at the Greek governments’ potential debt swap. Our analysis points to the fact that this deal will be very attractive for a number of reasons, and that investors should be involved through the purchase of the GGB strip.

Headlines regarding the Greek government’s plans of a potential debt swap worth c30bn has driven GGB 10yr yield to 5%. The government plans to swap the aggregate GGB strip which is a synthetic construct of 20 different bonds into a series of new liquid on the run bonds. Investors will recall that the GGB strip was issued after the restructuring of Greek debt held by private investors in 2012.

The upcoming Greek government bond swap will be done in order to bundle up the GGB strip from 20 maturities ranging from 2023 to 2042 into 4 or 5 new maturities ranging from 7yr, to 20yr. The purpose is to construct a proper GGB yield curve and create the necessary liquidity for potential QE inclusion. Inclusion in QE could be a huge positive catalyst for Greek government bonds as the unlimited firepower of the ECB has significantly altered the yield picture of Europe forcing QE eligible European government bond yields to all-time lows.

As this has to be done on a voluntary basis (otherwise it will constitute a technical default) we expect the premium offered to be quite substantial. In terms of timing, reports indicate that the swap may be concluded in mid-November, before the next mission of the country’s creditors arrive.

Please feel free to reach out to us to discuss in more detail, we can be reached on +442078393456 or on [email protected].