Required reading this morning from Gillian Tett:
Somewhere in the bowels of the mighty European Central Bank, there is a number that many investors would give a lot of euros to see.
It refers to the volume of Greek government bonds that are now sitting in the ECB’s coffers, after being lodged there by European banks through central bank repo operations.
Sadly, the ECB considers this number far too “sensitive” to release, even after a delay. Nevertheless, as fears about sovereign risk rise, those hidden data are assuming ever-greater importance.
In an increasingly illiquid secondary market for bonds, it matters greatly who is holding the Greek stock. They might have trouble reselling – especially if ratings downgrades continue, imperilling the eligibility of Greek bonds for the ECB.
At present it is estimated that Greek banks hold up to €37bn ($50bn) of the outstanding €270bn-odd stock of Greek government bonds and bills. German banks, such as the Landesbank, are thought to hold a slightly lower amount, while French banks also have a significant chunk of Greek bonds.
It is a fair guess that many, if not most, of those bonds are now with the ECB. After all, what the ECB’s repo operations essentially do is let banks turn a risky asset (ie Greek bond) into something safer (euros). And that, in turn, means that banks now have fewer Greek bonds to lend to hedge funds, or other traders.
And the sobering conclusion?
Barring some truly deft sales action next week, in other words, a public bail-out looms. All eyes are on Athens; and, for that matter, on the faceless bureaucrats in Frankfurt too.
