Greek restructuring increasingly likely

Debt holders of Greece and Portugal continue to throw in the towel on the belief of getting fully repaid as 5 yr CDS in both hit record levels and yields spike to new highs. The German Finance Minister Schaeuble who is highlighted in today’s WSJ as a supporter of helping these countries is saying in a German newspaper that Greece may have no choice but to seek a debt restructuring in the next few months. There are different ways this can take place, one being extending loan maturities and its this scenario that the market believes is highly likely and why the Greek 2 yr is yielding 450 bps more than the 10yr. As an S&P analyst said though, “extending maturities of the loans would by our definition and by the definition of most investors to be the same as a default because you’re not adhering to contractual obligations that the debtor has signed up to when the loan was sold.” In Asia, Chinese bank loans in March rose 80b yuan more than expected and their FX reserves hit $3T, a new high. The yuan rose to a new high and another hike in RR may be forthcoming. Singapore tightened policy by letting the band of its currency peg to rise in order to fight inflation.

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