The IMF's Christine Lagarde, who I actually like, said that public Greek debt holders would have to take a hit on their Greek holdings if the private sector deal doesn't go far enough.
"The bigger the private effort, the smaller the participation of public creditors will need to be," Ms. Lagarde said. "If the level demanded of private investors isn't reached, then public creditors will have to step in too."
The article continues...
" The ECB has opposed taking haircuts on its Greek bond holdings, and has repeatedly said that it won't take part in any debt-restructuring talks and that it will hold its Greek bonds until they mature. Many ECB officials would likely view losses on their Greek holdings as a violation of the central bank's founding treaty, which forbids it from financing governments."
What is now clear are two things, the IMF is now actively pursuing the idea of the ECB taking losses on their Greek debt holdings (they are the largest holder of Greek debt which explains Lagardes' comments above).
However last night shortly after the European open, the Euro was lifted on another unsubstantiated rumor that Private Creditors in the negotiations would be willing to accept a 3.75% coupon (their last offer was 4% which the EU Finance ministers immediately shot down and demanded 3.50%). It turns out the original news was missing 1 thing, that the private creditors wanted the ECB to share in the losses as a pre-condition for the 3.75% coupon.
The ECB has seemingly gone from debate as to whether to take some form of loss, to a more rigid stance in which they view taking losses as a breach of law. The ECB has ruled out any voluntary losses and is now debating how to handle forced losses through legal channels as this would be seen as a breach of a law that forbids the ECB to finance public debt. Any ECB losses would be shared by each EU member nations' Central Banks. So the Euro essentially moved up on a sourceless rumor which was incomplete and conditions in the debt deal have significantly worsened with private creditors seeking equal protection via ECB involvement and the ECB having dug in their heels.
In the mean time, as I suggested would happen over the weekend over some very unwise comments out of Merkel and the CDU regarding bond holders, the bond holders are doing exactly what I said they would do and selling. Portuguese 10 year debt just hit a record 15%!!! This of course, if it continues, will hasten Portugal's need for a bailout and likely larger then the reported $30 bb.
In the US, Durable Good Orders came in beating consensus:
Released on 1/26/2012 8:30:00 AM For Dec, 2011
| Prior | Consensus | Consensus Range | Actual | |
| New Orders - M/M change | 3.8 % | 2.2 % | -1.7 % to 5.2 % | 3.0 % |
| Ex-transportation - M/M | 0.3 % | 0.7 % | 0.2 % to 3.9 % | 2.1 % |
While Initial Claims missed:
| Released on 1/26/2012 8:30:00 AM For wk1/21, 2012 | ||||||||||||||||||||
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We have several more reports due today including: New Home Sales, Leading Indicators, EIA Natural Gas Report, a 7 year note auction as well as the F_E_D Balance Sheet.
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