Analyst: No good way to prepare for Greek, U.S. defaults

Marketplace Staff Jul 21, 2011
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Analyst: No good way to prepare for Greek, U.S. defaults

Marketplace Staff Jul 21, 2011
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JEREMY HOBSON: European leaders are meeting in Brussels right now to hash out the second bailout package for Greece. And the package may well cause Greece to temporarily default on its debt. Meanwhile, we’re 12 days away from the possibility of default here in the U.S. and still no deal so far in Washington.

Let’s dig into both of these stories now with Guy Lebas, who watches the bond market for Janney Montgomery Scott. Good morning.

GUY LEBAS: Good morning.

HOBSON: Well, a temporary default in Greece. What does that mean and should it be of concern to us on this side of the Atlantic?

LEBAS: Well, I’d argue that temporary default in Greece brought about by an exchange from old debt for new debt is actually a good thing. Because it implies that there’s not going to be a disorganized and sort of messy process if Greece suddenly stops paying on their debt. You might describe it as a prepackaged bankruptcy if you will, not unlike what happened with the auto companies here in the U.S.

HOBSON: Well, what about the debate here in the U.S. — in Washington. The debt ceiling — no deal yet. What are you doing to prepare for the possibility of a deal or no deal?

LEBAS: To be honest there’s no good way to prepare for the possibility of another deal. Our own expectations here are calling for sort of an eleventh hour agreement to raise the debt ceiling. Now, of course if that doesn’t happen there are potentially pretty big negative implications for the stock and bond markets as well. But nobody can say just exactly how that’ll unfold.

HOBSON: And Guy, put these two stories together for us. Does what’s happening in Europe affect the debate in Washington?

LEBAS: Not directly, but it could provide a little bit of a connection. If there’s mayhem in Greece after it defaults, Washington maybe a little bit more encouraged to raise the debt ceiling. But the big issue is investor confidence. We have these two big events facing investors over the course of the next week or so, and negative outcomes on both could be very problematic for the stock as well as the bond markets.

HOBSON: Guy Lebas, Cheif Fixed Income Strategist at Janney Montgomery Scott. Thanks so much for joining us.

LEBAS: Thank you.

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