PSI Participation at 85% to Trigger CACs

Finally the umpteenth deadline for Greece has come and gone and everybody seem satisfied with the outcome: due to the high participation rate (over 85%), the PSI  deal can be rightly regarded as a success. However, just as was ecxpected all along, the participation rate did not reach the threshold necessary to avoid the activation of retroactive collective action clauses.

As Bloomberg reports:

 

Greece pushed through the biggest sovereign restructuring in history after cajoling private investors to forgive more than 100 billion euros ($132 billion) of debt, opening the way for a second bailout.

Euro-region finance ministers agreed on a conference call that the swap meant Greece had met the terms to proceed with a 130 billion-euro rescue package designed to prevent a collapse of the Greek economy. Ministers freed up 35.5 billion euros in public sweeteners and interest now, with a decision on the balance to be made at a March 12 meeting in Brussels.

 

“It would be a big mistake to think we are out of the woods,” German Finance Minister Wolfgang Schaeuble told reporters in Berlin after the call today. “We have a chance of making it. And we have to seize that opportunity.”

Stocks rose while the euro fell after the government in Athens said it will trigger an option forcing some investors to take part in the exchange. Officials from the International Swaps and Derivatives Association called a meeting today to consider a “potential credit event” relating to Greece.

[…]

Investors with 95.7 percent of Greece’s privately held bonds will participate in the swap after so-called collective action clauses are triggered, the Finance Ministry said. Bondholders tendered 152 billion euros of Greek-law bonds, or 85.8 percent, and 20 billion euros of foreign-law debt. Greece extended its offer to holders of non-Greek law bonds to March 23, after which sweeteners will no longer be available.”

[…]

With Greece now in a fifth year of recession, Prime Minister Lucas Papademos’s government had said that it was ready to force holders of Greek-law bonds into the swap. The use of collective action clauses may trigger $3 billion of insurance payouts under rules governing credit-default swap contracts.

Greek Finance Minister Evangelos Venizelos said that participation “surpassed expectations” and he would recommend to Cabinet the authority to activate collective action clauses.

“This is a dangerous precedent that has been set,” John Wraith, fixed-income strategist at Bank of America Merrill Lynch, said in an interview on Bloomberg Television’s “Countdown” with Linzie Janis and Owen Thomas. For Greece, “yes, it is probably necessary, but it is just another hurdle crossed rather than some sort of solution.”

 

(emphasis added)

A few comments to the above:

A) the PSI deal is not “designed to prevent a collapse of the Greek economy”. It is designed to keep the charade of the common currency and the fiat money/perpetual debt Three Card Monte game of the Western welfare states going.

B) Schäuble is correct. “We” are not out of the woods. The opportunity will most assuredly be squandered if the past is any guide.

C) If ISDA fails to declare a credit event, the market for sovereign CDS is probably dead. Alas, as you will see below, the market is anticipating that ISDA will relent.

D) The result was good enough to avert a 'disorderly' default, but it is clear that the 'voluntary' nature of the debt swap is a complete farce. Due to the fact that public sector lenders to Greece such as the ECB, EU and IMF did not participate in the 'haircut' exercise, Greece's debt load remains at an unmanageable level even after the PSI deal.

 

Credit Market Charts

Below is our customary collection of charts,  updating the usual suspects: CDS on various sovereign debtors and banks, bond yields, euro basis swaps and a few other charts. Charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). Prices are as of Thursday's close.

CDS on Greece ended at a new all time record high of nearly 26,000 basis points on Thursday – a sign that market participants think that the declaration of a  'credit event' by ISDA is a foregone conclusion.

Other sovereign CDS and bond yields generally eased again on Thursday.

 


 

5 year CDS on Portugal, Italy, Greece and Spain – CDS on Greece end at a new record high on the eve of the debt swap deal – a nigh incredible 26,000 basis points – click chart for better resolution.

 


 

5 year CDS on France, Belgium, Ireland and Japan – click chart for better resolution.

 


 

5 year CDS on Bulgaria, Croatia, Hungary and Austria – click chart for better resolution.

 


 

5 year CDS on Latvia, Lithuania, Slovenia and Slovakia – click chart for better resolution.

 


 

5 year CDS on Romania, Poland,  the Ukraine and Estonia – click chart for better resolution.

 


 

5 year CDS on Bahrain, Saudi Arabia, Morocco and Turkey – click chart for better resolution.

 


 

CDS on Germany, the US and the Markit SovX index of CDS on 19 Western European sovereigns – click chart for better resolution.

 


 

Three month, one year, three year and five year euro basis swaps – a little better again – click chart for better resolution.

 


 

Our proprietary unweighted index of 5 year CDS on eight major European banks (BBVA, Banca Monte dei Paschi di Siena, Societe Generale, BNP Paribas, Deutsche Bank, UBS, Intesa Sanpaolo and Unicredito) – dipping further – click chart for better resolution.

 


 

5 year CDS on two big Austrian banks, Erste Bank and Raiffeisen Bank – click chart for better resolution.

 


 

10 year government bond yields of Italy, Greece, Portugal and Spain – click chart for better resolution.

 


 

5 year CDS on Australia's 'Big Four' banks – click chart for better resolution.

 


 

 

Addendum:

As it has now turned out, ISDA has declared that Greece has experienced a 'credit event'. This is not unexpected of course, but the market reaction late in the day (stocks were selling off a little bit after the announcement) indicates that market participants are somehow 'surprised'.

Marketwatch reports:

 

„The International Swaps and Derivatives Association said Friday that the Greek government's use of collective-action clauses, or CACs, to amend to terms of Greece-issued bonds qualifies as a "credit event" for Greece. A credit event requires a payout to those who held credit default swaps as insurance to protect themselves in the event of a Greek default. The ISDA decision could trigger payouts on $3.2 billion of those insurance-like contracts, according to Dow Jones Newswires. The news comes after the Greek government announced that 83.5% of its private-sector bondholders agreed to a bond-swap deal. That rate fell short of the 90% needed to prevent legal force to get the rest of the private bondholders to participate, so Greece's finance ministry said it got approval for CACs, which would bring the total participation rate to 96% by forcing some bondholders on board.“

 

 

Charts by: Bloomberg


 
 

Dear readers, we are greatly honored by your readership and sincerely hope that our special mixture of entertainment and education continues to add a little value to your lives. As you can probably guess, our blog is not really a giant commercial enterprise, for that its readership is too exclusive and small. Nevertheless, running it involves not only time and effort, but also monetary costs. We are therefore starting another fundraising drive. You can help us reach our funding goal by either donating directly via Paypal or via Bitcoin.

 

Thank you for your support!

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

 
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • HelloThe Stock Market in Trouble - How Bad Can it Get?
      A Look at the Broader Market's Internals We have previously discussed the stock market's deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). First it has to be noted that a majority of the stocks in the NYA are already in bearish trends. The chart below shows the NYA and the percentage of stocks above their 200 day and 50 day moving averages, which is 39.16% and 33.77% respectively. When...
  • drop-water-gold-power-40854578Gold Stocks: A Playable Rally May Be Beginning as Junk Bonds Crater
      Gold Stocks Jump and Retrace 50% Last week we discussed the potential for a rally in the gold sector (see: “Gold Stocks at an Interesting Juncture” for details). Gold stocks jumped early in the week and then retraced almost precisely 50% of the initial move higher, in the process closing a gap that was left behind on Wednesday.   Image credit: dreamstime.com   Interestingly, for the first time in many months, there were three up days in a row prior to the...
  • gold rush copyA new Multi-Year High in Buying by Gold Sector Insiders
      Latest Data from INK Show A Huge Surge in Insider Buying As our friends at INK Research in Canada have pointed out to us, insiders at gold companies have made use of the recent sell-off in the sector to load up on shares to an extent not seen in many years.   Image source: bidness etc   The INK insider buy/sell indicator for gold stocks has peaked just one day after China's initial devaluation announcement at nearly 1,200%:   INK's gold insider sentiment...
  • Close-up view of a gold bar with shallow depth of field.Gold Stocks – Update on a Tricky Situation
      It's Never Easy... Readers may recall that in one of our recent updates on the gold sector – which we believe is at an interesting juncture that may at the very least provide a good trading opportunity – we presented the chart of the 1992-1993 low in order to illustrate how extremely tricky the sector can be in the vicinity of turning points. Specifically, the sector made every imaginable move in late 1992 to convince market participants that a durable rally was nigh impossible....
  • oil_3136994bIs Crude Oil Close to a Low?
      Panicky Headlines Everybody knows that there is a never-ending glut in crude oil, right? Who knew about it a year ago? Not everybody, that much is certain. The problem with what everybody knows is of course that it is often not worth knowing.   Photo credit: Alamy   Today a friend pointed two articles out to us that have been published yesterday and today. Their headlines say it all. The Wall Street Journal writes “No End in Sight for Oil Glut” - and proceeds to...
  • panic-buttonThe Stock Market's Panic Potential
      The Odds Favor a “Warning Shot” Scenario - but there is a “But” As regular readers have probably noticed, we have upped the frequency of our “caution is advised” posts on the stock market in recent weeks in light of the market's increasingly deteriorating internals. Although one never knows when exactly such warning signs may begin to matter, it is always a good bet that they eventually will. Last week the market delivered a little wake-up call to the hitherto rather...
  • USDCNY(Daily)The Donald and China, or The Fallacy of Protectionism
      Not Every Populist Topic is Worth Exploiting For reasons that will forever remain a mystery to us, mercantilism and protectionism actually hold enormous popular appeal. The best explanation we can come up with for this phenomenon is that the support for such policies is based on a mixture of economic ignorance and relentless propaganda by vested interests over the past, say, four centuries. Still, it is almost comical that people are so vociferously clamoring for policies that can actually...
  • piggyReal Wealth and Phantom Wealth – Secular Boom and Bust
      The Things that Produce Real Wealth vs. Phantom Wealth Our friend Michael Pollaro, the keeper of long-term data on the true money supply and author at Forbes as well as occasionally a guest author on this site, recently sent us the following chart of a relationship he keeps a close eye on. It depicts the annual change rate in new orders for non-defense capital goods and compares this series to the Wilshire total market index.   Photo via...
  • JesusHuertaDeSotoJackson Hole – Meeting of the Physics Envy Brigade
      Planners Meet to Discuss the Impossible The Jackson Hole pow-wow takes place this weekend. A more revolting get-together of actual and armchair central planners (i.e., the advisors to the planners, many of whom see themselves as planners-in-waiting) could hardly be imagined. One has to wonder how much more damage they will be allowed to inflict before someone finally says “enough!”. The parlous state of the global economy and the series of booms and busts we have experienced over the...
  • post-mortemThe Stock Market After the Mini Crash
      A Post Mortem – the Influence of Black Box Systems Here is a brief update on the recent market action and what we think one should watch out for now. First of all, we already noted in our last market update that something about the recent “mini crash” was quite unusual. For one thing, it started to get serious in an options expiration week, which happens only rarely. One rather scary precedent is actually the 1987 crash: on that occasion the market declined sharply during expiration...

Support Acting Man

Archive

Own physical gold and silver outside a bank

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Recent Comments