Greek debt swap concludes in success

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The Greek debt swap results have been released and have matched yesterday’s rumours that suggested a large take-up would be forthcoming. According to this morning’s statement the participation rate sat at 85.8% before the implementation of collective action clauses to bring the remainder to agreement. The total now sits at 95.7% of investors, with the remainder of bonds being held under English and not Greek law. The difference is slight but those remaining investors will fight the default through the law courts.

Given the use of the CACs we are now looking to see whether the International Swaps and Derivatives Association will rule this as a ‘credit event’ and allow those holding CDS insurance agsint a Greek default to claim. They are reportedly meeting this afternoon at 1pm.

With it all being said this is good news in the short term for markets as it eliminates uncertainty and means that a disorderly default has been avoided. The longer term debt dynamics are still horrid however, but little better can be done while Greece remains part of the single currency. The elections next month will now be a battle of pro and anti-deal and those opposed to the troika’s plan may do well.

The Markets have received the news well so far with Asian markets moving higher and European shares set to open in the green as well. Currency markets have once again remained quiet overnight with euro slipping slightly post Greek announcement.

The Bank of England and ECB decisions yesterday were overshadowed by the Greek deal and subsequently had a muted effect on the market. The Bank of England held both interest rates and asset purchases at 0.5% and 325bn respectively. The minutes due in a fortnight will flesh out how vigorous the discussions on whether further quantitative easing may be needed in the future but we expect that the decisions to keep everything “as is” were unanimous ones.

The European Central Bank also decided to not move interest rates yesterday with ECB Chair Mario Draghi confirming in the subsequent press conference that the governing council had not even discussed interest rates. He emphasised “upside risks” to the inflation outlook and consequently revised their inflation expectations higher to 2.4% from 2.0% for 2012. What this means is that those banking on a near term rate cut by the ECB will be disappointed as the old anti-inflation paranoia seems to be back. This is likely a giveaway to the more hawkish members of the governing council (this means you Bundesbank) who have expressed negativity towards the ECB’s recent liquidity operations.

Draghi’s comments were received positively overall as he seeked to emphasise that signs of stabilisation were evident in the euro area. The general gist was however, that the recent 3yr LTROs has bought the Eurozone time to get its house in order and that without governmental reforms there is little else that the ECB can do.

Today is Non-Farm Payrolls day and following the recent good news from the jobs market a strong number is expected. Expectation is for somewhere over the 200k mark and will be needed to quell speculation that further QE is forthcoming from Ben Bernanke’s Federal Reserve.

We also have BOE inflation expectations at 09.30 which are set to continue falling. The bank will be hoping that they are slipping lower so as to allow them further wiggle room in respect to additional asset purchases. Recent upward moves in oil prices could the fly in the ointment.

Indicative Rates Sell Buy
GBPEUR 1.1968 1.1999
GBPUSD 1.5721 1.5745
EURUSD 1.3114 1.3137
GBPJPY 126.90 127.17
GBPAUD 1.4890 1.4919
GBPNZD 1.9237 1.9265
GBPCAD 1.5725 1.5754
NZDUSD 0.8163 0.8184
GBPZAR 12.01 12.06
USDZAR 7.6347 7.6674
GBPPLN 4.9732 5.0004
EURJPY 105.83 106.09

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Greek debt swap concludes in success

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