Athens: Investors anticipating a Greek default may be waiting into 2012.

Greek policymakers are unlikely to ask bondholders to take writedowns in the next six to 12 months to avoid losses at banks and triggering contagion, said Pavan Wadhwa, the London-based head of global interest-rate strategy at JPMorgan Chase and Co.

They may opt instead for less disruptive measures such as lengthening the repayment period, according to analysts at Deutsche Bank AG and Rabobank International.

"None of the options Greece has in front of it are costless, and the most likely scenario is that it muddles along for now," Wadhwa said. "The cost of restructuring its debt is unknown and could be large, compared with the cost of bailing it out further."

Greek bond yields and the cost of insuring the country's debt against default rose to records last week, rekindling speculation that a debt write-off or extension of repayment timelines will be the way out of the country's fiscal quagmire.

The extra yield that investors demand to hold 10-year Greek bonds relative to German debt of similar maturity was 12.27 percentage points today, up from 9.5 percentage points at the start of the year. The yield on two-year Greek securities is hovering around 25 per cent.

Exposure

The Bank for International Settlements estimated German and French banks had $91 billion (Dh334.2 billion) of exposure to Greek government and private-sector debt at the end of 2010. The nation's five-year bonds, issued at par, are trading as low as 55 cents per euro. Standard & Poor's has said the risk of a Greek debt restructuring, where investors take a so-called haircut, has risen and the potential write-off may be as much as 70 per cent.

With Greece's debt ballooning to 142.8 per cent of gross domestic product, the highest in the euro's history, and forecast to climb to 159 per cent in 2012, some investors said the country may not improve its fiscal position without imposing losses on investors.

Greek bondholders will end up losing "a massive amount" of money even if Greece tries to delay the "inevitable" by going for softer options such as extending maturities, said Stuart Thomson, a Glasgow-based portfolio manager at Ignis Asset Management, which oversees $120 billion.

The restructuring of a debt load, estimated at €340 billion ($505 billion), will "start off as a Greek farce and end up as a Greek tragedy," Thomson said. "We may get a series of modest debt rearrangements at first and that's likely to happen this year. But eventually, it will become a full-blown restructuring. Their debt load is enormous and there's no way they can carry on without someone somewhere taking huge haircuts. The market isn't adequately pricing in that risk."

Greece's refinancing needs of €58 billion are covered this year by the loan package from the European Union and International Monetary Fund. The big challenge comes next year. In the aid plan, Greece is supposed to regain market access and refinance at least three-quarters of its maturing medium, and long-term debt, and then fully fund debt rollovers beginning in mid-2013.

The country may have difficulties borrowing a planned €25 billion in financial markets next year, European Financial Stability Facility head Klaus Regling said in an interview with the German newspaper Handelsblatt.

He told Les Echos separately that a restructuring of Greece's sovereign debt should be considered a last resort.

Easier terms

Greek Finance Minister George Papaconstantinou said Monday easier terms for €110 billion of international loans would help avoid a debt restructuring.

"There will be no restructuring or haircut," he told journalists in Athens.

Prime Minister George Papandreou has said such a move would devastate domestic banks and further jeopardise the economy, which shrank 4.5 per cent last year.