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Investors are unlikely to take up in sufficient numbers the voluntary swap scheme set up by the euro zone for Greek bonds because they will be tempted to sell at the higher prices found at the short-end, investment bank JPMorgan says.
In a note dated Monday, the U.S. bank also questioned the 21 percent "haircut," or loss of capital investment, estimated under the scheme. It said the loss would be more like 34 percent.
JPMorgan calculates that the institutions that have already signed up for the debt exchange/rollover represent 64 billion euros ($91.7 billion US), or 43 percent, of the 150 billion euros in Greek bonds maturing through 2020.
"However, we believe that it will be difficult to achieve the required 90 percent participation rate since financial institutions will be tempted to sell Greek bond holdings into recent strength, especially at the front end of the curve," it said.
JPMorgan noted that by its own calculations Greek bonds maturing in less than two year were "rich," or expensive, making them more attractive to sell. Longer maturities appeared cheap.
The bank also disagreed with bank lobby group Institute of International Finance, which drafted the exchange/rollover proposal, about how much of a haircut creditors would take.
The IIF assumed a 9 percent yield on 30-year Greek bonds, implying a 21 percent haircut off par. But JPMorgan reckons 30-year bonds are likely to yield around 12 percent, meaning a 34 percent haircut.
Greek creditors in banking, insurance and fund management are eagerly seeking more clarity on the proposed scheme, in which debt can be swapped for 15-year or 30-year bonds paying interest Greece can more easily afford.
It is designed to help Greece slash its debt.
Deutsche Bank, HSBC, BNP Paribas, Societe Generale, Allianz, AXA and Generali hastily signed up to the scheme on Friday but a slew of others including Royal Bank of Scotland have yet to confirm their participation.