The Latest from Greece PSI

The latest from Greece’s negotiations with private creditors, 33 members of the committee holding 40.8% of the €206 billion in private Greek debt, have agreed to accept the debt exchange offer being proposed by Athens. This is twice the number of bondholders accepting the debt exchange on Tuesday. This means the Greek government is close to attaining sufficient participation to activate Collective Action Clauses (CACs) required to force other creditors to accept the deal. CACs will be activated if at least 50% of bondholders subject to Greek law respond to the PSI offer and at least 2/3 of those responding agree to its terms.

Of the €206 billion in privately-held Greek debt, about €177 billion is subject to Greek law, and thus to the CACs. That means creditors holding half that amount, or €88.5 billion, must respond to the offer and that 66%, or €58.9 billion, of that subtotal must accept the terms.

The question remains whether Greece would at all trigger the CACs if it obtains 75% approval. It is not entirely clear whether Greece would choose to activate the CACs below 90% participation or below 75%. Greece’s Public Debt Management Agency said yesterday that if the deal failed (insufficient participation to trigger the CACs), then bondholders would sustain a restructuring under far less favourable terms than the ones included in the PSI deal.

All of these manoeuvres are aimed at enabling Greece to receive its second bail out and meet its March 20th payment. There are no guarantees that Greece will not need a third bailout as the nation enters its sixth-year of recession as well as prolonged policy following the outcome of the April elections.

Today’s +216K reading in February’s ADP highlights the recent improvement in US economic data, which will likely dictate a positive USD reaction in the event of at least +180K increase in February’s NFP reading due this Friday. This would be explained not only via an improved US growth/data differential relative to the eurozone, but also on risk aversion flows as equities face the challenge of diminishing chances for QE3.