Greece’s decision to force losses on some bondholders will drive up borrowing costs for all European nations, according to Armstrong Investment Managers LLP.
“The market will demand a risk premium for all euro-zone bonds, even from Germany, following today’s restructuring,” Patrick Armstrong, a managing partner at the London-based money manager that oversees about $350 million, said today in an e- mailed response to questions. “Over the long-term this will lead to higher borrowing costs for everyone, as a risk-free rate does not exist.”
Greece said today it will achieve a 95.7 percent participation rate in its debt exchange after activating so- called collective action clauses to force losses on investors. The swap is intended to prevent the nation from missing a debt payment by reducing 206 billion euros ($273 billion) of privately held Greek debt by more than 50 percent. It will be the biggest restructuring in history.
Armstrong holds a “small amount” of Greek notes due March 20 and will be forced to participate in the swap by the CACs, he said.
German 10-year yields were little changed at 1.80 percent at 10:42 a.m. London time, after falling to 1.77 percent on March 7, the lowest since Jan. 16. The rate on similar-maturity French bonds fell three basis points to 2.87 percent. Spanish 10-year bond yields were 10 basis points lower at 4.96 percent.
“Euro ministers have repeatedly said Greece is a one off, and private-sector involvement will not happen anywhere else,” Armstrong said. “We believe their rhetoric will prove worthless should the euro-zone economy take a turn for the worse.”
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