At some point in the great collective peyote dream that was last month’s debt ceiling crisis, we asked you to imagine the Fed buying defaulted US Treasuries.
Fortunately, the US central bank was thinking about it too. Read more
Every Federal reserve bank shall have power…
…To buy and sell in the open market, under the direction and regulations of the Federal Open Market Committee, any obligation which is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.
– Section 14.2(b)2, Federal Reserve Act
Now, reading that carefully…
Does that mean the Fed can’t buy defaulted US government debt? Read more
The markets have spoken and they are ambivalent: fine, you want to shut the government down, see if we care.
Nomura’s Jens Nordvig finds that stocks are up a bit, emerging market currencies doing well and bond yields slightly higher. However, there was movement on Tuesday that suggested the first nervous rearranging of assumptions around a US default.
Complicated, ambiguous, a Heath Robinson machine of sovereign debt payment.
Those are all good ways to describe the likely legal strategies that are now open to Argentina, if it proposes to go on freezing out holdouts but continue paying out on restructured foreign-law debt. That’s after last Friday’s landmark US Court of Appeals decision. Read more
We are NOT making this up. We couldn’t.
Amazing what sometimes comes out of the European Parliament.
That’s an amendment from Jean-Paul Gauzès, Member of European Parliament, to the otherwise fairly sober draft legislation on how EU bodies should monitor governments’ finances, including bailout programmes. Dubbed the “two pack”, the draft legislation (including the Gauzès amendment) was approved by MEPs on Wednesday. This won’t come into force until the European Council has reviewed the legislation, which is going to mean months of negotiation, rejection of parts of the measures, and amendments, probably. Read more
Holding foreign-law bonds in preference to domestic-law in peripheral eurozone sovereigns: such a cliché now, they built the Greek PSI around it.
It also made it possible (though it alone did not make it probable) for holdouts in the €435m May 2012 floating-rate note to get paid out in full on Wednesday. Read more
EFSF will make €5.2bn payment to Greece – Reuters
Although €4.2bn will be disbursed on 10 May and the rest has been held back because Greece doesn’t need it until June, apparently. Anyway, on that note… Read more
Subordination of private bondholders by the official sector is already very acute. This means that the more a PSI exercise is delayed, the higher the haircut on the notional needs to be for a given level of debt relief. Consequently, the sooner a PSI exercise happens, the better…
Not Greece 2011, but Portugal 2012. Read more
Latest from the Greek finance ministry (its debt manager has met German banks):
The Republic confirmed that if it receives sufficient consents to the proposed amendments of the Greek law governed bonds identified in the invitations for the amendments to become effective, it intends, in consultation with its official sector creditors, to declare the proposed amendments effective and binding on all holders of these bonds. Consequently, all obligations of the Republic to pay holders of those bonds any amount on account of principal will be amended to permit the Republic to discharge these obligations in full by delivering to the holders of the amended bonds on the settlement date the consideration described in the invitations. In addition, the Republic’s obligation to pay interest on its Greek law governed bonds will be amended so as to reduce the amounts due to interest accrued through 24 February 2012 and to provide that such amounts will be paid by delivering short-term EFSF notes in lieu of cash. No further interest will accrue or be payable on those bonds. Read more
Click image for the full release doc — we’re still waiting for the technical memo stuff:
The central administration lacks the management, oversight and co-ordination structures to support effective implementation and long-term management of policy measures, including structural reforms to support sustained economic growth. This is a fundamental obstacle upon which many reforms have already stumbled…
Legal formalism has generated a culture and legal framework which provides no incentives for initiative on the part of civil servants, discourages any policy actions which are not accompanied by a legal text, privileges the observance (and development) of administrative processes rather than attention to the policy substance of civil service work, and slows down the work of the administration… Read more
The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome… Read more
Eurozone states signed the final version of the treaty establishing the European Stabilisation Mechanism on February 2.
(Click the image for the full document) Read more
The FT’s James Mackintosh recently pointed out an interesting provision in the loan agreement Greece has with its bilateral official creditors – its fellow eurozone states.
They are entitled to require Greece to pay the whole loan back immediately if the country defaults on private bondholders. Click the image to enlarge (the full agreement is available here from the Greek finance ministry): Read more
The unstoppable force…
“If the level of Greece’s privately held debt is not sufficiently renegotiated, then public creditors, holders of Greek debt, will also have to participate in the financial effort,” Lagarde told journalists in Paris. Read more
If you didn’t believe us that the European Central Bank will do everything it can to achieve seniority for its Greek bonds in the country’s debt restructuring, hopefully Thursday’s ECB press conference convinced you.
Not only did ECB chief Mario Draghi obsfuscate — twice — on whether the bank is prepared to take losses on its Greek debt, but Vitor Constancio, the vice-chief, made a point of emphasising that Greece is negotiating private sector involvement. Read more
There was a nice line in the FT’s latest story on Greece’s debt restructuring:
Questions are also being raised about the ECB’s estimated €45bn of Greek sovereign holdings. Collective action clauses are likely to be introduced into Greek bonds by the PSI deal, leaving the ECB – which has said it will not participate in the voluntary restructuring – potentially in an uncomfortable position in the future. “The ECB’s holding will be the story to watch in the next few months,” a person close to bondholders said. Read more