Member Article

Chaotic Greek default averted although CDS contracts likely

Much of today’s headlines were dominated by news from Greece where it was revealed that a total of 85.8% of bondholders had agreed to the bond swap by yesterday’s late deadline. Falling short of the 90%/95% mark that would pave the way for the country’s second EU/IMF bailout, Greece was forced to impose its collective action clauses and force smaller investors to partake in the restructuring. Whilst many are sure this will constitute a credit event, the final decision rests with the International Swaps & Derivatives Association, who met at 1pm today and as at the time of writing hadn’t released a decision. The outcome of their meeting would dictate whether the $3 billion of outstanding CDS contracts would be triggered.

The outcome was largely priced into financial markets, equity markets opening roughly flat although gaining ground throughout the day. This came despite comments from Fitch suggesting the credit rating on Greece had been reduced to “restricted default”, following its two major rating agency peer downgrades last week. There did however appear some discrepancy between equity and currency markets, the euro sharply lower (more than 1%) against the dollar.

The much anticipated US jobs data came in slightly ahead of the 210,000 jobs that were anticipated at 227,000. There were some upgrades to data in January and December and the unemployment rate stayed the same at 8.3%. The results were generally regarded as a decent set of numbers and may suggest that a third round of quantitative easing by the Federal Reserve is unnecessary. In such a scenario the dollar would be an obvious beneficiary, something that may explain the strength of the greenback against the euro today.

The FTSE 100 flirted with the flat line for the majority of the morning, receiving a boost with the US data and closing around its highs for the day at 5887. It represented a 28 point or 0.5% gain, roughly in line with major European and US indices.

This was posted in Bdaily's Members' News section by James .