The market is now broken for all the PIIGS debt. The structure of the last EMU bailout for Greece and the response of Merkel and Sarkozy to the Papandemonium, opening the possibility and challenge that an EMU member could and should exit, was the last straw. The message from Greece was that if you hold any PIIGS debt you need to sell it right away. We saw the Failure of MF Global caused by thier PIIGS debt holding...we saw the run on Jefferies because of thier PIIGS debt holdings. In both cases they sold thier holdings. Look at the EU banks reporting...in each case they are writing down and selling thier PIIGS holdings. The bail out scheme for Greece has not considered the effect that it would have on the market of sovereign debt as a whole and PIIGS debt in particular. Now the market is broken...its all sellers and no buyers until the ECB steps in...but they don't have the legal constitution right to step in directly and they don't have the money or the time to do it any other way.
Since I try to stay as far away as possible from sov CDS, I am not sure what goes on in that stupid mkt. I am mainly referring to the bond mkt.
What is the LCH shenanigans please? (I have not been able to get my eyes away from BTP price action all day so had no time to catch up news stories)
Was talk of an emergency ECB meeting in last hour. I think if I was Draghi I would do something drastic like cut to 50bp immediately. Maybe that would turn the PIIGS debt around.
The raising of the haircuts on Italian repos, which was "pre-announced", strictly unofficially, last night and was finally made public this morning.
Martinghoul, you are spreading misinformation. There is no 'haircut' in the London Clearing House (LCH) move and there was no informal private then public disclosure...that is all crap. They, as the clearing house for the trades, simply raised the capital reserve for dealers margin accounts on trading Italian debt...which was a predicted and prudent move as the spread between Italian debt and German debt exceeded 4.5%...It was known for days that if the spread reached that level the LCH would have to raise margin requirements and so they did. It was predictible to anyone who understood these markets. It is ridiculous and misleading to call that adjustment 'shenanigans.' A 50 basis point reduction from the ECB would not help the PIIGS because it will do noting to make there debt attractive...but it will be good for the dollar and then after the margin calls, for gold.