S&P seems to think that when you effectively stick a gun in someone’s mouth and threaten to blow their brains out unless they take your alleged “voluntary” deal that still counts as a default.
Standard & Poor’s said today a rollover plan serving as the basis for talks between investors and governments would qualify as a distressed exchange and prompt a “selective default” grade. That may leave the bondholders unwilling to complete the exchange and the European Central Bank unable to accept Greek government debt as collateral, impairing the lifeline it has provided the country’s banks.
That’s because it is a default. “Take this exchange on less-favorable terms or we’ll screw you” is still a screwing. There is no material difference between the two; differences are in degree, not kind.
Greek government bonds rose following the finance ministers’ authorization of the payout, pushing the yield on the 10-year bond down 2 basis points to 16.3 percent as of 11:35 a.m. in London. Two-year yields dropped 86 basis points to 25.9 percent.
Wow, 25.9%? That is not an interest rate, it is an imputed recovery.
“Consultations with Greece’s creditors are under way in order to define the modalities for voluntary private-sector involvement with a view to achieving a substantial reduction in Greece’s year-by-year financing needs, while avoiding selective default,” euro-area finance chiefs said in a statement after their July 2 conference call.
Voluntary? Yeah, right.
Those who believe the Greek problem is “resolved” may have a few surprises in store for them yet.