"The ECB has swapped their Greek bonds for the new bonds, no write down, no CAC clauses. In essence, the 50 year old concept of eqaul treatment for creditors was just thrown out the window as PSI (Private Sector Involvement) will (if Greece gets the deal don on the terms that have been proposed) will take a 50-70% loss on their swap of old Greek bonds for new ones (depending on the coupon). What happened today is the ECB set a new precedent of two classes of bond holders, senior and subordinated and with that, the concept of equal treatment of creditors went the window. What may end up being the unintended consequence and come back around to bite the ECB is the fact that this was what bond holders were afraid of. Now any private bond holders (and we're not talking about grandpa and grandma, we're talking about hedge funds, banks, sovereign wealth funds, etc) know that the more bonds the ECB hold of any one of the PIIGS, the bigger their losses will be when Portugal renegotiates their debt, followed by Italy and Spain. This will almost certainly cause bond buyers to think twice about buying bonds that they now know they are likely to take huge losses on, which will leave the ECB as the only incremental buyer of debt in the Euro-zone and they may have trouble doing that on new issues unless the buyers receive explicit guarantees that the ECB will in effect conduct QE 2 and promise to buy the bonds from the private sector as the ECB can only mop up what is out there on the secondary markets, they can't buy new issuance just as the F_E_D is prohibited from buying at Treasury auctions."
Pimco's (the world's largest bond fund) Bill Gross tweeted today...
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