Its never over until the fat lady sings.

Greece still has to raise over 10 bln euros during April & May and the world’s bond investors know this only too well.

There is no point in them aggressively bidding up Greek debt and tightening its spread over German bunds whilst there is still an avalanche of supply to be absorbed.  The core problem with the EU & IMF agreeing to lend Greece money at Greek market interest rates if Greece fails to find willing buyers for her debt is that the EU/IMF proposal provides no incentive for the market to tighten Greece’s spreads over bunds (Greek 10-year bond yields traded above 7% in this first week of April 2010).   However during yesterday’s ECB press conference, Jean-Claude Trichet moved the goalposts and implied that “market interest rates” did not mean the cost of borrowing to Greece but the cost to each individual euro-zone member of raising their share of the money that would be lent to Greece.  If this is true then you can expect Greece to try to borrow money (effectively at a weighted average euro-area interest rate) from her fellow euro-zone members as soon as possible, i.e. this weekend.

In the absence of cheaper loans from fellow euro-zone members, it will only be when the markets sense that Greece has got over the crest of the hill (in terms of satisfying its funding requirements for 2010) that spreads over bunds will then start to tighten. In the meantime each week’s trading in Greek bonds is likely to follow the same pattern – big sell-off on Monday morning if there has been no bailout over the weekend then spreads squeeze tighter towards the end of the week in case a bailout emerges over the following weekend.

The EU and IMF are imminently going to be called upon by Greece to show the colour (and price!) of their money.  If & when the euro-zone members do get their act together, then the ending of the current uncertainty will cause a rally in the euro currency (and Greek debt spreads will snap tighter too).  It will all be announced over a weekend before the markets reopen on the Monday morning.

Its not over until the fat lady sings and Greece’s fat lady is currently warming up her voice in the wings and is about to step onto the stage.