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February 17, 2012

ECB To Swap Greek Bonds to Avoid Loss

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 5:11 am

Several Euro zone officials told to press, that The European Central Bank (ECB) plans to swap its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring.

The ECB holds around 50 billion euros of Greek bonds as a result of its Securities Markets Program that started in May 2010, aimed at restoring the transmission of monetary policy on financial markets distorted by the sovereign debt crisis.

Greece is planning to introduce collective-action-clauses (CACs ) into its bond contracts to allow a majority of its bondholders to force all holders into a new bond exchange. CACs typically make all bondholders subject to losing part of their capital in a retrospective action that does not require the assent of all lenders. To ensure that the ECBs bonds aren’t forced into this exchange, it plans to swap its existing bonds for new Greek bonds that won’t contain these clauses.

An exemption from collective action clauses, or CACs, would mean the ECB would not have to participate, should the Greek government impose involuntary losses on bondholders. That may occur if not enough private creditors agree to a voluntary swap.

If this ECB plan goes ahead, it may appear that the ECB is receiving preferential treatment. If the ECB is in the market buying bonds, with the subordination of investors to the central bank, the actual losses will be distributed over a smaller pool of bonds, giving investors even larger losses.

It would raise questions about whether the ECB is senior to private-sector bondholders, not only in the case of Greek debt, but also regarding the debt of other euro-zone nations that the ECB may be purchasing.

The ECB within its Securities Markets Program has also bought bonds including those of Spain, Portugal and Italy totalling 219.5 billion euros.

Greece will submit legislation to parliament on Feb. 21 to allow the use of CACs in a debt-swap process that will start on Feb. 22 and conclude on March 9.

In the meantime, according to some sources, bond swaps could already take place over the weekend, and the new bonds the ECB would receive, would have the same terms as the original ones.

Sources: Reuters and Bloomberg

Another Intraday EUR Squeeze?

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:38 am

In the past 24-hours, the market has seen an aggressive EUR reversal higher from support found at 1.2975. The move is allowing analysts to take dead aim on a stronger rebound, back above the 1.32 handle that we had briefly occupied earlier in the week. The change in sentiment comes from the bit of relief on the European front allowing the market to focus on fundamentals, specifically US data that seems to be improving day-over-day. Another round of strong US releases yesterday is attempting to boost risk sentiment and punishing the greenback. However, it would be very non-European not to believe that another nervous weekend lies ahead despite the intraday turnaround.

The aggressive squeeze put on the weaker EUR shorts was caused by the Greek government believing that a deal is done. This occurred after German sources yesterday indicated that a plan to delay the overall deal to Greece by providing a bridging loan to pay next months bond redemption had been dropped, thus paving the way for the country to get a second +EUR130b bailout after next Monday’s Euro finance ministers meeting.

Aiding risk sentiment is the news that the ECB plans to swap its Greek debt holdings for new bonds once debt restructuring negotiations are complete. The central bank is expected to be exempt from the so-called ‘collective action clause.’ An exemption means the ECB would not have to participate if the Greek government imposes involuntary losses on bondholders from its PSI program.

Allowing the ECB not to incur losses means they could distribute the profits from the holdings to the second Greek aid package. Swapping into new bonds would make it easier to impose losses on other remaining holders. Obviously, there are cries of preferential treatment. An exemption could be creating a two-tier system, which would discourage investment in other peripheral debt markets. In theory, this will eventually weaken the EUR. However, its not an issue for today. Allow the leaders to ink a deal first before we make that connection.

Stronger US data yesterday is expected to put the final squeeze on the weaker shorts this morning, as there is little else on the radar to do so. Initial jobless claims last week beat expectations, falling to the lowest level in four years, meanwhile Philly Fed for this month came in stronger than expected, as did January housing starts. However, being M.I.A is the safest way in these headlined fueled moves.

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February 13, 2012

Greek Political Leaders Approved the Austerity Plan

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:26 am

On Sunday night, the Greek parliament approved a deeply unpopular austerity package needed to secure a 130 billion euro bailout and save Greece from a default next month.
The austerity plan includes 15,000 public-sector job cuts, liberalisation of labour laws and lowering the minimum wage by 20% from 751 euros a month to 600 euros.
A majority of 199 members of parliament voted to approve the package, with a total of 74 voted against it. More than 40 rebel deputies were immediately [...]



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February 10, 2012

EUR to lose Faith?

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 4:35 am

Buy the rumor sell the fact, there was none of that. There was no euphoria when the austerity deal was finally struck on the Greek side. Global equities did happen to receive a small bid, fixed income yield remained rather flat, but that was it, no ticker tape parade. One certainly gets the feeling that no one believes in it, and that is the reason why the European finance ministers have dismissed the +EUR3.3b Greek budget cuts as incomplete. They [...]



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February 9, 2012

Euro Gains on Greek Deal

Filed under: OANDA News, Uncategorized — Tags: , , , , , , , , , , , — admin @ 12:57 pm

By Sam Mattera
Benzinga Guest Writer
Finally! The Greek situation has been put to bed! Or has it?
On Thursday morning, Greek leaders announced that they had finally reached a deal with their private creditors to avoid an outright default. The EUR/USD currency pair instantly rallied on the news, spiking over 0.30% to break strongly above the $1.32 price level.
US equity markets moved into positive territory, trading at modest gains early in the session on Thursday. Equity futures had been…



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February 6, 2012

US Curve Flatter Despite a bid EUR

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Even stronger domestic fundamental data cannot pressure US bond prices. Longer dated securities again have caught a bid on concerns that the Greek Prime minister has requested the country’s finance ministry to prepare a document on the implications of a Greek default. Earlier today Treasuries came under pressure as dealers prepared to take down +$72b of new product this week. The government is to auction +$32b in three-year notes tomorrow, followed by +$24b of 10-year debt on Wednesday and $16b long-bonds on Thursday.

Merkel and Sarkozy indicated in Paris this morning that time was running out for Greece.
Any negative headlines regarding Greece and rumors of default will only increase the markets appetite for risk aversion trading strategies. Before today, long bonds managed to back up +18bp over the past three trading sessions. Despite initially been oversold on the back of a stellar NFP report that saw the US unemployment rate improve three ticks to +8.3%, the 2/30’s yield curve has flattened -3bp to +286bp.

Prime Minister Papademos over the weekend asked the ministry “to record accurately and realistically all the consequences of the country’s exit from the euro zone.” Greece still has not come to an agreement on the austerity measures needed to qualify for a second bailout from the EU and IMF. Today, the Greek government has agreed in principle to axe -15k workers to fulfill one of Troikas conditions (a reason why the EUR has temporarily caught ‘a second wind’). Papademos needs to receive funds by March in order to avoid a ‘disorderly default’. Not helping market sentiment are the negotiations between Greece and the PSI bondholders remaining unresolved.

All parties concerned have a strong incentive to reach a deal and it would not be surprise to see an agreement in the next few days. However, once a deal is reached, markets again will begin to focus on the degree of actual participation in the swap by bondholders. The market seems to be looking for other reasons to apply risk aversion trading strategies.

The Nikkei closed at 8,929 up +97. The DAX index in Europe was at 6,764 down -2; the FTSE (UK) closed at 5,892 down -9. US indices remained in negative territory with the Dow currently trading at 12,819 down -43.

    Greece Slides Closer to Default

    Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 6:53 am

    Yet another deadline has passed without resulting in an agreement on the terms for establishing a new rescue package for Greece. The 130 billion euro ($170 billion) in emergency funding earmarked for Greece is contingent on the Greek government agreeing to, and abiding by, a program of severe spending cuts to address the country’s chronic overspending.

    Patience is wearing thin amongst the “troika” comprised of the European Central Bank, the International Monetary Fund, and the European Commission that will provide and oversee the funding. The mounting frustration was evident in comments German Chancellor Angela Merkel made yesterday before the press in Paris:

    “We want Greece to stay in the euro,” she told a news conference. But she added: “I want to make clear once again that there can be no deal if the troika proposals are not implemented. They are on the table, time is of the essence. Something needs to happen quickly.”

    Source: Reuters

    February 1, 2012

    Buy the EUR Rumor and Sell that Fact?

    Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 4:32 am

    The EUR again has failed to break out of its current range. When its on its knees, down and just about out, Chinese PMI lends a hand in the overnight session. The world’s second-biggest economy has withstood weaker exports driven by the Euro periphery debt crisis and a government-induced property slowdown to give a PMI print of 50.5. A print that still is in expansion territory, no matter if the data may be distorted by a weeklong holiday.

    Along with a rise in risk appetite influenced by a ‘whisper’ that a Greek debt deal is imminent, has the EUR testing against its upper range. In truth, it’s difficult to find a diehard Bull amongst us. The market psyche has us believing that most EUR positive moves are supposedly an excellent opportunity to add to the record short positions. These EUR short squeezes are to be treated as an opportunity-no action taken and it becomes a cost! The weak bears certainly hope so.

    A successful conclusion to the PSI talks as “promised and expected” will not be the end of the matter-negotiations will remain ongoing. Why? The haircuts being discussed (around 70%) naturally will meet “with very unsatisfactory participation from the perspective of Greek and Euro/IMF authorities for forward looking debt sustainability.” Greece is likely to legislate Collective Action Clauses into the outstanding debt. The objective would be, once legislated, they can be used more coercively to force participation in the restructuring process-In English, whatever is agreed upon, there will be more negotiations required. The nightmare does not end with a successful PSI announcement.

    Given that there are so many technical details to be worked out, maybe the market is not fully reflecting the difficulties that are likely to be associated with completing the Greek rescue package. For now, data showing that contraction in the Euro-zone factory activity last month (48.8 vs. 46.9) has slowed is supporting the single currency. Germany remains the outlier, the only country registering a reading above 50, indicating expansion. No matter, investors will wait for the promised Greek PSI agreement before outright celebrating. So, is it buy the rumor sell the fact time now?

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    Record Eurozone Unemployment Pits North Against South

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    January 31, 2012

    Record Eurozone Unemployment Pits North Against South

    Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 1:26 pm

    The December unemployment rate for the 17-member countries comprising the Eurozone rose to the highest level since the Euro was introduced in 1999. For the month of December, the rate for the entire region rose to 10.4 percent after the November result was similarly revised upwards one tenth of a percent from the originally-reported 10.3 percent.

    A total of 16.5 million people across the Eurozone are now out of work. This is an increase of three quarters of a million in the past year alone. But the pain is not being felt equally amongst all Eurozone nations.

    Greece and Spain recorded the greatest increase in unemployment over the past year. At 22.9 percent, Spain had the highest unemployment rate for the entire area with Greece not far behind at just over 19 percent. Portugal watched helplessly as its unemployment rate continued to climb reaching 13.6 percent in December.

    Comparing the results of these southern countries with the northern jurisdictions reveals the gap between the north and the south. In Germany, for instance, December’s unemployment rate actually fell more than expected to 6.7 percent – the lowest since German was reunited. Meanwhile, Austria and the Netherlands continued to record the lowest Eurozone unemployment at just 4.1 and 4.9 percent respectively.

    Unemployment to Increase in Some Eurozone Countries

    Looking ahead to the coming year and beyond, there is every likelihood that the situation will actually worsen. As even the most casual observer knows, the Greek government is presently under intense pressure to implement the infamous “austerity” measures to address the country’s widening deficit.

    The massive spending cuts targeted to meet the goal of ultimately eliminating the deficit will require Greek authorities to eradicate a significant number of government jobs. Other countries including Spain, Portugal, and even Italy will be forced – to some degree at least – to follow the same agenda in order to get a handle on overall spending.

    Widespread job losses will not be restricted to just the government, however; the private sector too will be forced to reduce costs as companies struggle with falling sales. In the face of the continued uncertainty and growing fears of recession, companies will postpone or even cancel all but the most essential new projects, delaying new hiring accordingly.

    Again, it will be the southern countries that will feel the effects of this most keenly.

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    Market Frustration

    Filed under: Forex News — Tags: , , , , , , , , , — admin @ 7:02 am

    The Brussels Summit ended yesterday with no favourable resolution for the Greek saga leaving the market showing its frustration on the EUR/USD driving it down to 1.3075.  Apparently German Chancellor Angela Merkel shared the same frustration with the Greek government’s failure to carry out its economic reform.  Euro found its base at 1.3135 during early Asian session and the theme today for Asia was sell dollar.  However moving towards the London session we may see EUR/USD take on a different theme in the form of volatility.  With a whole battery of macro data expected today from the Euro zone, it may be touch and go.  We have German retail sales (MoM); French Consumer Spending (MoM); German Unemployment Change; Italian Unemployment Rate; Eurozone Unemployment Rate.  In New York expect Chicago PMI and more importantly US Conference Board Consumer Confidence.  Euro support is seen at 1.3120 but the psychological level of 1.3000 is possible if all the ‘bad’ stars align.  Top side try for 1.3230.

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