Greek PSI

The Greek PSI thus far is not hard to understand, it is lengthy and a bit complicated, but not hard to understand. The market's initial reaction to the 1 a.m. announcement was not good, but since then ES has bounced around in a range, a little above and a little below yesterday's 4 pm market close, it rallied around 6 a.m. in to the Non-Farm Payrolls which is another story and the market since has been in a triangle consolidation.

The participation in the Greek PSI was right down the middle of expectations at 85.8% of bond holders, only 69% of non-Greek Bond holders participated (these are the foreign law bonds the hedge funds have accumulated). That means $25 billion in foreign law bonds have not participated and Greece has said they WILL enact the coercive retroactive collective action clauses, either forcing these holdouts to participate or perhaps just not paying them altogether. The hedge funds will bring lawsuits to try to recover full par and on an accelerated basis. Greece did extend the deadline for foreign law bonds to March 23rd as some speculated.

Later today the ISDA will determine if a default has occurred triggering Credit Default Swaps (the insurance against bond losses).

Market efficiency seems to be betting on another Greek default as the new bonds that replaced the old are already this morning trading at 20% of face value!

Portugal, Ireland and Spain are likely to seek out the same deal that Greece got and why shouldn't they, the Troika just discovered it can force banks to do whatever it wills and subordinate their debt at the same time, which is why the new bonds are trading so cheap, they realize how massively subordinated they are, something that didn't exist in the bond markets until Greece.

It seems the market is waiting to see when Greece triggers the CAC's as they said they will, but apparently haven't yet and what the ISDA's determination will be regarding CDS. We also can look forward to what the credit rating agencies are going to have to say about this, although they may wait for CACs to be triggered forcing all holdouts to participate.

There are further implications which the think tank,  OpenEurope has done a good job of summarizing.


Here's the link to their analysis which raises some interesting issues that most probably have not contemplated, it's worth a read when you have time.

Next up, the ISDA.