New Greek bonds to price in high risk of default

New bonds that Greece will issue this month as part of its debt restructuring are likely to be the highest yielding in the euro zone as creditors price in a high risk of being forced to take yet more losses. Greece is trying to convince banks, insurers and other investors to take massive losses on their Greek bonds through a debt swap next week, in a bid to slice 100 billion euros off its 350 billion debt burden.
But analysts say the target will be hard to achieve . If Greece, currently deep in recession, grows less than expected or runs larger fiscal deficits than planned, it risks having to restructure its debt again or being forced to leave the euro zone to regain competitiveness. Even after the debt swap, Greece's economic outlook will be worse than that of Portugal, the country seen by many as the next most likely to follow Greece in restructuring.
The new Greek bonds, which mature between 2023 and 2042, are thus likely to trade with a higher yield than Portugal's and some analysts say their prices will imply a more than 50 percent chance of another default. "Their debt is not clearly on a sustainable path - much like people's view of Portugal - and they're going to require further support for the long haul," said Helen Howarth, head of EMEA interest rates strategy at Credit Suisse.
"Portugal is very much the floor and the question is what premium over Portugal you put in there," she said, adding that she expected the new bonds to yield between 12 and 15 percent. The Portuguese 2023 bond last yielded around 14 percent, while the 2037 bond yielded around 11 percent. Portugal's debt is expected to peak at 118 percent of economic output in 2013, lower than Greece's ambitious target of 120.5 percent in 2020.