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Thursday, March 1

1st Mar - ISDA sees no Greek event

The rally crashed the correlation
Today’s main event in regular topics was surely the “no credit event”-ruling from ISDA. The ruling was exactly as expected, and markets did not react - it just launched a huge debate among bloggers.

LTRO-related articles can be found in LTRO: The Ultimate Collection. I am on Twitter, Facebook, email and

Joke of The Day: While PIMCO’s Bill Gross complains that ISDA did not declare a credit event, PIMCO sat in ISDA’s Determinations Committee and voted for no credit event.

News – Between The Hedges
Markets – Between The Hedges
EZ Crisis: Daily Press Summary – Open Europe
  In 2015, 85% of Greek debt will be owned by taxpayer backed institutions

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT

European contraction, Old World recession
Brinkmanship in Brussels, Sturm and Drachma for Greece and
Brinkmanship has produced an early-morning deal in Europe to extend a new lifeline to Greece and clear the way for the biggest sovereign bond restructuring in history. This column takes a detailed look at the EU deal, the ongoing brinkmanship between the Eurozone and the IMF, and the general focus on austerity.

Disquiet within ECB laid bare after cash injectionReuters
Some ECB policymakers are alarmed that a dramatic loosening of lending policy stemming from a 1-trillion-euro wave of cash unleashed into the financial system will fuel imbalances in the euro zone and stoke inflationary pressures.

The euro crisis: Worse and worseFree exchange / The Economist
While we may thank Mario Draghi for preventing a sudden euro-zone collapse, it should be clear that the ECB ought to be acting far more aggressively to fight what is clearly now a euro-zone recession.

Hollande takes on LondonOpen Europe
The self-described “Mr Normal” has sought to win over the French electorate by presenting himself as the humble antidote to flashy Nicolas Sarkozy. Trouble is, Sarkozy is playing the same game.

UBS’s Yu Says He Is ‘Quite Bearish on the Euro’ – BB (mp3)
Legal & General’s Grodski Says LTRO Not Funding Economy – BB (mp3)
Barclays’s Fransolet Says Bank Bond Purchases Will Slow – BB (mp3)
Berenberg’s Schmieding Says ECB Has Controlled Contagion – BB (mp3)
Peterson’s Kirkegaard ‘Surprised’ No Default Declared – BB (mp3)

As ISDA Sits To "Find" If Greek CDS Triggered, It Gets Second Greek Default Determination RequestZH
Just how many more such requests can ISDA sustain before it comes out appearing like a manipulated, corrupt organization, dominated by banks (if also a few hedge funds), and finally caves first on Greece, then all the other countries (all of those where the ECB has bought bonds), where the ECB has subordinated creditors?

ISDA Unanimous - No Payout On Greek CDSZH
the real trigger will be what ISDA does determines following the end of the
PSI process.

Psst! I’ve Got a Secret ISDA
In sum, we think the credit event/DC process is fair, transparent and well-tested.  There’s simply no evidence to the contrary.  Perhaps after today this non-secret secret will be a secret no more.

Greece CDS: trigger sadalphaville / FT
We wonder how end-users will come out of this one. And we wonder whether Isda and dealers will succeed in convincing everyone that everything in the sovereign CDS market is working out just fine.

When is a default not a default?Buttonwood’s / The Economist
You know when you try to claim on your car insurance and it turns out that the policy only pays out if your car is crashed into by Elvis Presley riding Shergar?

Market Share, Profitability, Why CDS Isn’t On An ExchangeTF Market Advisors
So almost half of the entire gross notional outstanding on PIIGS CDS sits on the books of 2 dealers.  Why is there no rush to get these products cleared?...There are some serious vested interests to protect.

Greek Bailout Kills the Sovereign CDS Market?Pension Pulse
The amount of speculative abuse going on in the sovereign CDS market -- as opposed to plain hedging activity -- has wreaked havoc on periphery economies. It's high time policymakers put an end to this nonsense. ISDA's ruling also means counterparty risk won't explode, which is bullish for risk assets in the near term.

Greece And ISDATF Market Advisors
I remain convinced that if CAC’s are used to sweep up holdouts, then there will be a Credit Event, but if the CAC’s aren’t used, then there is only a Credit Event if they don’t pay bonds out at par.

Understanding Greece’s defaultFelix Salmon / Reuters
Greece has now broken the sovereign-default taboo; many countries both inside and outside Europe have way too much debt; and now that debt relief is an option for politicians to seriously consider, it’s pretty much certain that at some point another European government will end up choosing that option.

ISDA’s Greek Ruling Not Last WordWSJ
Most analysts agree that Greece will need to actually use the collective-action clauses to force at least some creditors to do the exchange. Once that’s done, expect another question for the ISDA committee: Is that fact that Greece forced creditors to accept new bonds with worse terms than the old a credit event? And you should expect a yes.

So Maybe Greek CDS Won’t Be Fine, Who Knows, I Give UpDealbreaker
At least in my experience one thing that financial markets participants really quite like is predictably achieving the right result – and here, at least, there is no serious debate about what the right result would be.

Why the ISDA ‘No’ Vote on Greek CDS Actually MattersMarketBeat / WSJ
The reason all this legal mumbo-jumbo matters is that the ECB has been accumulating debt of other countries. Were any of those countries to undergo a similar restructuring – which some think is a real possibility for Portugal – private bond holders could find themselves pushed aside again.

The second Greek bailout - Bad for Greece, bad for eurozone taxpayersOpen Europe
Given the sizeable debt relief needed in Greece, a fuller coercive restructuring would have been a simpler and more effective option from the start. Even at this late stage it still presents a viable option and is the only hope of putting Greece on a sustainable path while still keeping it in the eurozone – although even that may not be enough.

A Guide to the Big Greek Debt SwapMarketBeat / WSJ
Quick intro

Spain's deficit: "Brussels, We Have A Problem"Open Europe
The Commission has two options. It can play hardball and tell the Spanish government that deficit reduction targets are not negotiable, risking more rage from the masses. Or it can loosen the targets, risking requests from other eurozone countries for the same treatment and hostile market reactions.

13 steps for a Greek exit from the euroPragmatic Capitalism
a nice overview here of how a Greek exit could play out (via Wall Street Rant and Variant Perceptions)

Southern European Money Migrating North to SafetySpiegel
More and more people in southern euro-zone countries are moving their money north amid fears of losing their savings in the crisis. The capital flight makes things difficult for banks back home, but experts say there are no legal measures to stop it. Any steps would probably come too late, they say, and might even endanger the European project.

A Devaluation Option for Southern EuropeProject Syndicate
There is a remarkably simple alternative that does not require southern Europe’s troubled economies to abandon the euro and devalue their exchange rates. It involves increasing the value-added tax while cutting payroll taxes. Our recent research demonstrates that such a “fiscal devaluation” has very similar effects on the economy in terms of its impact on GDP, consumption, employment, and inflation.

Divergence between crude and gas increasing
EMEA WeeklyDanske Bank (pdf)

Looking for the TriggerMacro Man
Possible killers of the risk-on: oil, Portugal, France’s elections,

The New ETF That Could Kill Mutual FundsThe Fiscal Times
PIMCO launches an ETF: “If you’re going to lose assets, it might as well be to another product in your family”

Goldman Backpedals On Housing Recovery, To Mid-2013ZH
We now project that house prices will decline by around 3% from 2011Q3 until 2012Q3, and by an additional 1% in the year thereafter. As a result, the expected bottom in house prices is pushed out from end-2012 to mid-2013. Although the house price outlook has weakened very slightly, we believe that the house price bottom remains in sight.

I'm Being FollowedThe Atlantic
How Google and 104 other companies are tracking me on the web. Who are these companies and what do they want from me? A voyage into the invisible business that funds the web.

On Israel and IranBruce Krasting
I spoke with a fellow in Europe I know who has an informed opinion. There were no secrets discussed, but his thoughts on some of the variables including Syria, bunker bombs and timing were interesting.