A few days ago Piraeus Bank issued a 10 year bond with a coupon north of 9% and the first days of trading the bond traded briefly below par yielding a mesmerizing 10% yield that really had me scratching my head given that GGB's were trading at the moment at about 2.5% between election euphoria and Draghi's new pledge for easing.
Is it possible to find 10% yield in the eurozone where the benchmark bonds are trading below 0% and is it too good to be true?
I began a preliminary research into available bonds from the Greek banking system and the respectful probabilities of a credit event from the 4 large banks in Greece trying to figure out how risky buying the longer maturity bonds really is and what it really means for a depositor under the bail in clause that took effect on the Cyprus bail out.
As you can see from the Bloomberg ranking above the 4 Greek banks (based on their CDS) are the four most probable to come under a credit event in Europe. The probability of that happening for Eurobank now is at 59.13% while for Piraeus Bank is currently at 58.51%, Ethniki bank at 57.67% and finally Alpha Bank at 48.77% appears to be the safest among Greek lenders. If one assumes that a depositor would not be safe holding more than 100k in any of the Greek lenders then it would make sense for him to buy the bond of Piraeus Bank or Eurobank with the excess liquidity (of course it would need to be more than 100k above the 100k mark). At least the high yield of those bonds would offer him capital protection in some degree in case of an event while if the bonds are recalled and nothing happens the return is 9% in euro.
Given that a new government is elected I think that the banking system will be protected at any cost and such a high-risk investment would make sense for those with the appropriate risk profile.
All the above are just thoughts on the market and not in any case investment advice, also the CDS price and the probability of a credit event is derived from the current price of the CDS that could very well change in the future.
