Butter,
I think I found a methodology that can tell me what is the 2012 total return for a Greek bond holder.
According to the Central bank at year 2011, the 10y was at
43.94 (100 par) with a 21.14% yield to maturity
At 2012 year end, the 10y was at :
43.62 (100 par) 13.33% yield to maturity
One can quickly notice that the bond price didn't change much, but the yield went down a lot. Normally this would indicate a rally in the bond but in this case the drop was due to the bond reestructuring
So the total loss to the investor would be the net present value difference between the year end 2011 vs year end 2012 bonds? I don't think I can do that because it they didn't do a 1-1 bond transfer, it was a mix of stuff that was offered to the bondholders
"(i)One and two year notes issued by the EFSF, amounting to 15 per cent of the old debt’s face value;
(ii) 20 new government bonds maturing between 2023 and 2042, amounting to 31.5 per cent of the old debt’s face value, with annual coupons between 2 and 4.3 per cent. These bonds were issued under English law and governed by a “co-financing agreement” with the EFSF which instituted a sharing provision for the private bondholders vis-à-vis the EFSF (see below);
(iii) A GDP-linked security which could provide an extra payment stream of up to one percentage point of the face value of the outstanding new bonds if GDP exceeded a specified target path (roughly in line with the IMF’s medium and long term growth projections for Greece).
(iv) Compensation for any accrued interest still owed by the old bonds, in the form of 6-month EFSF notes"
The authors of the study valued the total of these securities at around 22 cents on the previous face value bond. So what I'm going to do is to consider that the investor got that mix of shit and then sold all the unusual things and bought the 10y bond right at the end of march 2012. Why? That's a form of rebalancing, the reestructuring changed the exposures (by adding EFSF bonds and other things) and the investor only wanted 10y Greek bonds, so he was forced to rebalance ahead of time
There was a 60% rally in the 10y in these new 10y bonds between the end of march 2012(when I have data from the central bank of the first market price of the bond) and the year end 2012, plus there was a 6% implicit coupon. So the total return after the reestructuring was around 64%. But that 22 cents worth of stuff assumed a discount rate of 15.3% (by the authors), by march end 2012 the yield was 22.86%(I think the bonds sold off between the first day of trade and the end of the month). The authors show that the valuation wasn't super sensitive to the discount rate
If I assume a 23% discount rate, I would get maybe a new bond equivalent of 19c of face value of the previous bonds. Those 19c equivalent of old bonds then returned 64%. The result is 31.16
So the transformation suffered by Greek bondholders appears that was:
Year end 2011 they owned 10y bonds at a price of 43.94 (100 par) with a 21.14% yield
At year end 2012 they owned new bonds worth 31.16 of old bonds face value (100 par value) but with a reduced yield of 13.333%
How much that loss represented?
That $64 to $50 represents a -21% loss, after 2012 I can use my data as it represents the same bond (under english law now) and it's changes over time. If I plug in a -21% return for 2012 and then run the Computer portfolio (the only one that doesn't rely on 30y bonds), I'm getting
Much worse than though. Mine and the Dalio portfolio are probably going to be doing a lot better given that the 30y bond was sparred from a lot of pain. I think they rallied a lot in 2012
But its interesting how "cash like" instruments got punished in Greece. Now there is one more risk to people that want to avoid risk at all costs and sit on cash like instruments.
There is unexpected inflation (like in Brazil in the 70's and 80s), financial repression (US since the 08 crisis) and unfair bond reestructurings where the long end is sparred and the short-term get punished massively (Greece)
Last edited:
