Greece sold €5bn (US$6.7bn) of 7-year bonds yesterday. This morning the deal is about 25 bps higher in rate. Supposedly, the buyers of yesterday’s Greek debt issue were mostly accounts who were told to participate in the sale. Also, in yesterday’s sale, the underwriters were told to eliminate hedge funds from being eligible to participate. While hedge funds are not likely to be Greece’s long term buy and hold account, they do play an important function in the market via the liquidity they provide. Hedge funds also create an appearance of demand, which in turn, helps bring other buy and hold accounts into the market. The proof is in the pudding. Since yesterday, Greek debt yields are up 20 to 25 bps, while German debt yields are down by 2 bps and Portugal debt yields are up by a modest 2 bps. In other words, the sale did not go very well, as evidenced by the increase in Greek debt yields today, versus nominal changes in the yields on other European sovereign debt.

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