Greece Borrows at 4.56% !!!! What Crisis?

--European stocks advance post Greek auction, coupon payment
--Traders look to Greece talks, Fed news
--Italian downgrade broadly shrugged off

By Toby Anderson & Ishaq Siddiqi 
   Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)--European stock markets advanced Tuesday, with investors buoyed by some reasonably positive noise coming from Greece, assuaging some of their concerns about European debt contagion.

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Similarly, the Greek Public Debt Management Agency managed to raise EUR1.625 billion in a sale of three month treasury bills, with a yield of 4.56%, only slightly above the 4.5% offered to investors in an equivalent sale in August.  

(click here for the complete article in the WSJ, some of it requires a subscription)

Wait a minute! I thought Greece was about to default.  How come they can still borrow at 4.56%? The truth, of course, is that 1 year Greek bonds are offered for sale (no buyers around) at a rate of 130%.  If you think the disparity is insane, you are correct.  So why the difference? The so-called auction today placed all 1.625 billion euros in friendly hands.  Usually banks who depend on the ECB or the Greek Central Bank for financing.  In other words, the bonds are purchased by the banks with ECB or Greek Central Bank money (yes they can do that).

How do we know? because no sane investor would lend Greece money at 4.56% for even 3 months when they can get a much better return in the market.  Like buying 1 year paper with a chance of more than doubling their money.

Naturally, the ECB, the banks, and the Greek treasury have an interest in pretending that Greece can still borrow at 4.56%.  The question is why does The Dow Jones Company go along with the charade? Perhaps is because neither the reporter nor the editor has ever traded a distressed bond.

So, the next time you hear optimism based on market prices for Greek, Irish, Portuguese, Italian, or Spanish debt, remember that prices are manipulated and that the press doesn't even understand the mechanisms.