After intense negotiations at the recent World Economic Forum in Davos, Switzerland, a deal with Greek bondholders seems imminent.
In October 2011, the bondholders agreed to take a 50% cut in the face value of their bonds, worth more than 200 billion Euros. In simple terms, this means that bondholders will only be paid 100 billion Euros once the debt matures, effectively shaving off 100 billion Euros off Greece’s debt load.
In a landmark discussion in Davos, politicians are now pushing for a 60% haircut.
As recently as 23rd Jan 2012, the creditors demanded an average coupon rate of 4.25%. The current proposal – a debt swap – is to have an average coupon rate of 3.6% on new 30-year bonds.
The coupon rate had been the main stumbling block in the talks, with euro zone ministers rejecting private creditors’ demand for a coupon rate of at least 4%.
In the end, creditors seem ready to accept a lower rate, although it hasn’t been cast in stone yet (at the time of this writing).
“Next week we will be in a position to complete the debt swap,” Greek Finance Minister Evangelos Venizelos said, citing significant progress at Sunday’s talks. “We are really one step away from the final deal.”
Crushed by 350 billion Euros of debt and running out of cash quickly, Greece is desperate to see the deal through, because it will pave the way for Greece to receive its second bailout from the “troika” worth 130 billion Euros.
If the deal doesn’t go through, and money from the troika doesn’t flow in, Greece will have no way to meet the 14.5 billion Euros bond payment due on 20th March 2012.
Davos aside, European Union leaders met in Brussels yesterday (Monday) to put the finishing touches on a German- led deficit-control treaty and endorse the statutes of a 500 billion Euro rescue fund to be set up this year.
Top News This Week
China Manufacturing PMI. Wednesday, 1st Feb 2012, 9am. I expect a reading below 50 (previous figure was 50.3).
USA Non-Farm Payroll. Friday, 3rd Feb 2012, 9.30pm. I expect figures to come in between 140K to 170K (previous figure was 200K).
Trade Call
Long EUR/CHF at 1.2020
On 6 September 2011, The Swiss National Bank (SNB) intervened in the Forex Market to prevent the Franc from strengthening further. In a few hours, the EUR/CHF surged over 1,200 pips. In the press release on 6 September 2011, the SNB mentioned:
“The Swiss National Bank (SNB) is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”
Current price on EUR/CHF is dangerously close to the set floor price of 1.20. In anticipation of an intervention by the SNB to defend the 1.20 peg, we will go long once prices touch 1.2020. A protective stop is placed 70 pips below the entry price and we will have 2 targets on this trade, exiting the final position at 1.2160.
Entry Price = 1.2020
Stop Loss = 1.1950
1st Profit = 1.2090
2nd Profit = 1.2160
