Wednesday, November 23, 2011

Today's Major Market Move: Greek Stock Market Down 20% in November

It hasn't been that long since we last talked about Greece (see this post on Nov 1), but it remains on the leading edge of the European crisis and can't seem to avoid staying out of the news. Greece is quickly running out of cash and is engaged in a game of chicken with the EU. Speeding down the road in car in one direction are the various Greek parties that make up the government which have varying levels of commitment to austerity measures. Careening towards that car is the EU microbus with a compartment full of cash. Will either one of them decide to veer out of the way? We'll soon found out, but in the meantime European equity markets, and in particular Greece, are in the midst of a severe decline. The main Greek equity index (the FTSE/ASE 20 Index) is down 20% for November, second only to mini-Greece (aka Cyprus):

Click here to go to the live table.

It's the same 1-2 configuration when looking at annual performance, with Cyprus in the dubious #1 spot with a 78% decline and Greece following at -64%:

Click here to go to the live table.

While we're talking about Greece, let's check back in with the Greek 1 year bond. Back on Nov 1 we reported that the yield had just crossed the 200% mark. After a big jump on Monday, the yield now sits above the 300% level. I was expecting the yield to stabilize at a level below this because the market is now effectively pricing in a haircut quite a bit larger than the 50% that was agreed to at the end of October. (as this post was being written, the yield just dipped a hair below the 300 level to 297)

Click here to go to the chart on

Update: I just stumbled across the reason for the elevated Greek 1 year bond yield; Greece has been directly negotiating with bondholders for larger haircuts.

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