Recap 2-21-12

Main Items:

  • Chicago Fed National Activity Index improved to 0.22 in Jan vs 0.21 exp and 0.17 prev
  • China cut the RRR by 50bps over the weekend.
  • RBA minutes: “While there were still many uncertainties, the central forecast was for growth in the global economy in 2012 to be about ½ percentage point below trend… If demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy.”

Eurogroup on Greece:

  • The Eurogroup has set the conditions for a new programme through 2014 for an amount of up to EUR130bn. The precise amount of the contribution by the official sector (EU and IMF) will only be determined by early March, after the PSI has been completed and conditional on the prior actions by the Greek government have been taken. “The Eurogroup acknowledges the common understanding that has been reached between the Greek authorities and the private sector on the general terms of the PSI exchange offer, covering all private sector bondholders. This common understanding provides for a nominal haircut amounting to 53.5%.
  • There will be a segregated account in which each quarter’s debt service will be paid in advance
  • The Eurogroup takes note that the income generated by the Eurosystem holdings of Greek Government bonds will contribute to the profit of the ECB and of the NCBs. The ECB’s profit will be disbursed to the NCBs, in line with the ECB’s statutory profit distribution rules.”
  • Interest rates on loans to Greece’s first programme will be reduced retroactively, implying a lower margin of 150bp, delivering a reduction in the Greek debt burden worth 2.8ppt by 2020. And national central banks will pass on future income from GGB holdings to Greece, which generates a further 1.8% reduction in debt to GDP by 2020.
  • Questions remain on CAC and CDS triggers. The Greek government will submit to the Greek parliament a draft bill which, if passed, will introduce a collective action clause into eligible Greek-law governed bonds of the HellenicRepublic, effectively enforcing losses through retroactive CACs on bondholders who will not take part in the debt swap
  • FT: diplomats said Jan Kees de Jager, the Dutch finance minister, and Wolfgang Schäuble, his German counterpart, sent Greek leaders back to bondholder representatives for further cuts at least four times over the course of nearly 14 hours of negotiations.
  • GS on PSI: Old securities will be exchanged into a portfolio of ‘short-dated’ EFSF paper, with face value of 15c, and a notional 31.5c of Greek government bonds issued under UK law and pari passu with other liabilities. The new GGBs securities will have maturities ranging between 11 and 30 years, replicating an amortization of 5% per annum commencing in 2023. The securities will pay a step-up coupon of 2% from Feb 2012 to Feb 2015; 3% from Feb 2015 to Feb 2020 and 4.3% from Feb 2020 to Feb 2042 (the weighted average coupon is 3.65% over the full 30-yr period, and 2.63% over the first 8 years). The effective NPV loss depends on the discount factor applied to the Greek cash flows after the deal. We make it close to 80c. An exchange transaction will be launched in early March. Incidentally, this raises the possibility that Portugal and Ireland will also seek a reduction in their borrowing terms from the official sector.


  • Swiss Trade Balance declined to 1.55bn in Jan vs 2.5bn exp and 2.07bn prev.
  • Swiss M3 growth increased to 8.2% YoY in Jan vs 7.7% prev

Upcoming Data:

  • China HSBC Mfg PMI, EU PMI’s


Forbes has joined a group of 30 clients using Narrative Science software to write computer-generated stories.