A request for comment by Moody’s — on how to rate asset-backed securities experiencing “rapid country credit deterioration”:
(Click to enlarge) Read more
Athens could squeeze out bondholders by changing the law so that the terms of any untendered bonds would have the same terms as the new ones, if a majority of debtholders — for instance 75 percent — voted in favour of the exchange. Read more
DJ: Greek Govt Has Sufficient Cash To Last Until Dec -Source
Yes, although when you get to December… Read more
If you’re trying to price political risk perfectly… you’re doing it wrong, we’d submit. The Greek referendum’s a case in point.
The referendum came out of the blue. It might not even go ahead, pending a government collapse or early elections. So, surely there’s not much point seeking to get in front of the truck (so to speak) on Greek politics at this point? The truck’s already run you over once before, with the referendum. Read more
…The President of the Republic shall by decree proclaim a referendum on crucial national matters following a resolution voted by an absolute majority of the total number of Members of Parliament, taken upon proposal of the Cabinet.
A referendum on Bills passed by Parliament regulating important social matters, with the exception of the fiscal ones shall be proclaimed by decree by the President of the Republic, if this is decided by three-fifths of the total number of its members, following a proposal of two fifths of the total number of its members, and as the Standing Orders and the law for the application of the present paragraph provide… Read more
Weirdly, the ECB does seem to be here to play chicken with Silvio Berlusconi, though:
Oct 25 (Reuters) – Euro zone leaders will call on the European Central Bank to go on buying bonds in the secondary market to support the likes of Italy and Spain, according to draft conclusions obtained ahead of a summit on Wednesday…
So the eurozone won’t be relying on the rather meagre EFSF balance sheet after all… maybe. (See below.) Read more
Pathological procrastination by the sovereign debtor in acknowledging the severity of its problem and commencing the necessary workout process can make the ultimate resolution of the crisis far more costly for all concerned—the sovereign debtor, its citizens and its creditors…
• Recommendation 1. The IMF should have a contingency strategy from the outset of a crisis, including in particular “stop-loss rules”—that is, a set of criteria to determine if the initial strategy is working and to guide the decision on when a change in approach is needed… Read more
The entire proposal rests on the premise that financial markets are now shunning these debts because of marginal doubts about their recovery value in the case of a credit event and that therefore by guaranteeing a small portion of this debt, the credit enhancement will comfort doubtful investors. This is an inadequate assessment. Financial investors have experienced tremendous price volatility in the last year, which now constrains a wide range of natural buyers who have been forced to adjust the size and duration of their portfolios accordingly. These investors are not driven by expected recovery value but by price volatility, this solution will not change their reaction function at all. For those investors that could be comforted by a degree of credit enhancement, it might be too small to be really enticing. Barring some friendly exceptional instances, experience is that when countries default or restructure, it tends to involve larger haircuts than the credit enhancement would offer. Read more
We definitely don’t have a bazooka, because we have a rubbish balance sheet.
We know the EFSF insuring sovereign debt has huge capital and also sovereign correlation risk. Basically not enough capital and way too much correlation wrong-way risk between this capital and the fund guarantors. Read more
Things that happened in 1992:
And it is fair to say that in those troubled ERM days, the French franc and the French government’s bonds were subjected to a high degree of market pressure versus the Deutsche Mark and Bunds. This included sharp one-day moves in the spread to Bunds and an overall high level for this spread. Read more
If you’ve ever read about central bankers in the 1930s objecting to countries coming off the gold standard, this post may cause a slight feeling of déjà vu…
On Thursday, the European Central Bank published its usual monthly bulletin on economic developments in the eurozone. But October’s edition contains these rather extraordinary comments (especially in light of recent moves to change the Greek bond swap)… Read more
(Reuters) – Losses for private investors on Greek debt in the second financing package for Athens are likely to be between 30 and 50 percent, rather than the earlier agreed 21 percent, euro zone officials said Wednesday…
Four euro zone officials confirmed that a haircut of 30 to 50 percent for private investors was now under consideration, but said no final decisions or agreements have been reached. Read more
11 October 2011 – Statement by the European Commission, the ECB and IMF on the Fifth Review Mission to Greece
Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) have concluded their fifth review mission to Greece to discuss recent economic developments. The mission has reached staff-level agreement with the authorities on the economic and financial policies needed to bring the government’s economic program back on track. Read more
Sign of the times (doing the rounds as a prelude to Slovakia’s EFSF vote later on Tuesday):
It’s baaack! The prospect of eurozone banks buying more sovereign debt to take advantage of new cheap one-year ECB liquidity, that is.
Newsflash — Finland to take part in Greek bond swap! Sort of. Via Bloomberg:
Under the accord, Greek bonds will be transferred from Greek banks to a trustee, which will sell them [no actual swap then, but think about the problem here - ed.] and invest the proceeds in AAA rated bonds with maturities of 15 to 30 years. Read more
RTRS-FRENCH, BELGIAN GOVTS, WITH CEN BANKS WILL TAKE ALL NECESSARY MEASURES TO SAFEGUARD DEXIA SA ACCOUNT HOLDERS, CREDITORS -FRENCH MIN Read more
Or, old-fashioned fun with default correlation.
By this point it is not looking good (if it ever really did) for the touted levering of the EFSF’s resources by borrowing from, or insuring in some way, the European Central Bank’s operations. The reasons for this are partly legal, mostly German, and in the last resort pretty much all to do with the leverage and/or loss tolerance being neither practical nor credible. Read more
We don’t really know where to start with this (it’s doing the rounds):
OK, you can’t lever the EFSF because the German government says no. Just no, no, no, no. Although even in the rare event that it changes its mind, there’s also this issue…
One of the problems with levering the EFSF by linking it to the ECB buying bonds, we’ve argued, is whether they would really eat their cooking and tolerate losses rather than leaving them on bondholder shoulders. Such as this “first-loss” protection idea. Read more
Rather than start directly with the weekend rumour of using the European Central Bank to “leverage” the EFSF…
… instead we’ll start what the ECB has done with the current Greek bond swap (these are answers to questions from the official bond swap website): Read more