Big props to Bloomberg for putting this little-known case on the radar (don’t worry, we’ll explain):
We missed this on Tuesday — the ESM’s answer to a fairly important ESM legal question.
(KR = Klaus Regling, ESM chief) Read more
“Was today the day that the Portuguese PSI began?,” Macro Man asks, of the OMT.
They’re noting something curious about ECB seniority in light of Thursday’s revelations about the OMT. The ‘technical features’ confirm that the OMT will receive equal treatment with ordinary bondholders if a eurozone sovereign restructures its debt. But, in the Q&A, Draghi also confirmed that the old SMP bond holdings will remain senior. It will be first in the queue, ahead of bondholders and the OMT. Read more
Here are the full ‘technical features’, which Mario Draghi read out at Thursday’s press conference. Three big things stick out:
- The ECB will apparently make a ‘legal act’ to confirm that its bond holdings under “Outright Monetary Transactions” are pari passu, not senior. Legislation signals a welcome precommitment, but a nasty fudge here: 200 billion euros of bonds held under the SMP (which programme has now been terminated) will not come under the pari passu rule. Read more
A reminder of why the ECB’s promise to “address” seniority in its new bond purchases matters so much (click to enlarge):
Here’s an interesting exercise in eurozone sovereign credit, courtesy of Francesco Garzarelli of Goldman — click charts to enlarge:
A little bit of confusion about this one on Thursday.
A one-liner, but from one preferred creditor to another…
Directors agreed that the ECB will have to continue to play a role in the crisis response, including through liquidity provision and securities purchases. A few Directors also noted that clarifying the seniority status of sovereign debt holdings by the ECB would help address market concerns. Read more
Lend at low rates, for a long term.
It’s one way Spain’s official creditors could believably renounce seniority in the bailout. Concessional loans would make it easier for Spain to refinance its debt stock as a whole, improving bondholder recovery, while recapitalising its banks. Arguably. Read more
*EURO LEADERS RENOUNCE SENIORITY ON SPAIN LOANS
Update (0445am UK time) — Well, well, well… eurozone leaders did indeed promise not to subordinate Spanish bondholders at the summit, as we assumed they would below. Seniority was “renounced” in the case of Spain.
That phrase suggests a reversion to the original status of official eurozone bilateral and EFSF loans – of being at least pari passu with bondholders. (Though at times the loans have even been subordinated on some points, such as restructuring interest rates. The status is a political football subject to constant change, you could say.) Read more
1) How do holders of Spanish bonds react to ESM subordination?
The cat’s out of the bag now, isn’t it. On the one hand Spain borrows up to €100bn for the bank recapitalisation which everyone knew was coming, but at a lower rate than everyone had priced into Spanish bond yields. Bond yield relief, maybe. Read more
