Did the ECB just kill the rule of law?

Amberman

News just in...the rule of law is just for the likes of you and me...not the ECB...shocker!

"We know now that the ECB can retroactively change the rules, change an indenture, so that if the ECB can do this with Greece then it can certainly do it with any sovereign debt in Europe.

If they can exempt themselves from a “collective action clause” then they can exempt themselves from any clause, in any sovereign indenture, for any European country.

It is the “collective action clause” today but tomorrow it could be the maturity or the coupon or any other terms and conditions in an indenture. It is Greece today but tomorrow it could be France or Portugal or Italy.

The “Rule of Law” has been abrogated and tossed aside in the name of political contrivance."

http://www.zerohedge.com/news/ecb-has-opened-pandora%E2%80%99s-box

mistermouse

Seems to me they are a law onto themselves anyway

I'd love to know how many work there, who has what powers and how they are qualified or deemed fit and correct to keep Europe on its knees.

Seems like a few elite to me, with one or two sent out on camera to justify the organisation and policies when everyone can see they are making a hems of the Eurozone and its not good for the zone overall

Bit like our politicians really, they are probably political appointees and we know what that means, whilst other than that they whole lot are just on the gravy train knowing that they will never suffer personally

Scofflaw

For those who may not see the point here, and who may, perhaps, not consider zerohedge to be the finest news source this side of Fox News, the point here is this:

1. as a general rule, sovereign bonds are subject to a "collective action" clause which says that:

"if a majority of the bonds held, agree to a change of terms, all the other bondholders are bound by the altered terms"

2. Greek government bonds have such a clause

3. the ECB holds Greek government bonds, purchased as part of its bond buying programme

4. there is a write-down planned for Greek debt

5. if the majority of the bondholders agree to such a write-down, the bonds the ECB hold would also be subject to the write-down, by virtue of the 'collective action' clause

In order to avoid this, the ECB are swapping their currently held Greek bonds for bonds not subject to the collective action clause. How? By asking the Greek government to swap the bonds, which the Greek government has agreed to do.

zerohedge has gone full-on pearl-clutching vapours about this, but, no, it's not illegal - the Greek government, the issuer of the bonds, has agreed to swap them - although it's quite possibly something only the ECB could pull off.

What does it mean for the plain people of Ireland? It means we don't suffer losses on the ECB's Greek bonds. The ECB makes good on such losses by passing them on to the central banks which make up the ECB, one of which is ours. The ECB is avoiding such losses here, which seems pretty reasonable - we're already paying for the Greek bailout, so taking losses on ECB-held Greek debt would be paying twice. But I'm sure that maintaining the position of private bondholders as comparable to European taxpayers is vitally important to zerohedge - after all, they're market shills, when all's said and done, despite being regularly mistaken for freedom fighters - or possibly they just like getting the vapours.

cordially,
Scofflaw

noodler

Scofflaw wrote: »

For those who may not see the point here, and who may, perhaps, not consider zerohedge to be the finest news source this side of Fox News, the point here is this:

1. as a general rule, sovereign bonds are subject to a "collective action" clause which says that:



2. Greek government bonds have such a clause

3. the ECB holds Greek government bonds, purchased as part of its bond buying programme

4. there is a write-down planned for Greek debt

5. if the majority of the bondholders agree to such a write-down, the bonds the ECB hold would also be subject to the write-down, by virtue of the 'collective action' clause

In order to avoid this, the ECB are swapping their currently held Greek bonds for bonds not subject to the collective action clause. How? By asking the Greek government to swap the bonds, which the Greek government has agreed to do.

zerohedge has gone full-on pearl-clutching vapours about this, but, no, it's not illegal - the Greek government, the issuer of the bonds, has agreed to swap them - although it's quite possibly something only the ECB could pull off.

What does it mean for the plain people of Ireland? It means we don't suffer losses on the ECB's Greek bonds. The ECB makes good on such losses by passing them on to the central banks which make up the ECB, one of which is ours. The ECB is avoiding such losses here, which seems pretty reasonable - we're already paying for the Greek bailout, so taking losses on ECB-held Greek debt would be paying twice. But I'm sure that maintaining the position of private bondholders as comparable to European taxpayers is vitally important to zerohedge - after all, they're market shills, when all's said and done, despite being regularly mistaken for freedom fighters - or possibly they just like getting the vapours.

cordially,
Scofflaw

As a side Scofflaw.

The Eurozone statement seems to imply the route the profit on ECB holdings of Greek bonds will take the following route....

ECB > NCBs > National Governments > Greek Government
"..may be allocated by Member States to further improving the sustainability of Greece's public debt.."

SIt seems rather convoluted, is this simply to avoid the ECB giving the profit back directly (which may be illegal or whatever), do you think?

Scofflaw

noodler wrote: »

As a side Scofflaw.

The Eurozone statement seems to imply the route the profit on ECB holdings of Greek bonds will take the following route....

ECB > NCBs > National Governments > Greek Government
"..may be allocated by Member States to further improving the sustainability of Greece's public debt.."

SIt seems rather convoluted, is this simply to avoid the ECB giving the profit back directly (which may be illegal or whatever), do you think?

It is, as indeed is the bond swap. The ECB cannot legally give direct aid to governments, and cannot therefore allow its bonds to be written down in favour of the Greek government even through a collective action clause, nor can it pass the money potentially saved in any other direct way to Greece.

That seems, on the face of it, ridiculous - after all, it's necessary, right? - but once the ECB does a direct write-down in favour of any government, it becomes open to just being a money pot, which means the euro's central regulator would be getting raided by this government and that for this reason or that. There's always a good reason, after all.

And it's not the ECB's money, but the money of the eurozone countries, so that would make the ECB just a way for the Member States to raid each other.

The ECB, being, as has been pointed out, undemocratic (and it certainly is, all central banks are), is legalistic. What it is doing here is convoluted, because it is the only legal - sorry, Amberman, zerohedge are just hopelessly wrong about it - route to passing on the possible savings. Allowing the collective action clause to force a write-down would, in fact, be illegal according to the rules the ECB operates under - not their operational rules, but their basic structural rules.

cordially,
Scofflaw

noodler

Oh, I have no real issue with the workings of the ECB.

I was more wondering about the techincal aspects of how the money will eventually find its way back to Greece.

I assume that when the CBI's 2012 report (and probably subsequent reports too) is released it will have a section on income from the ECB which will include Ireland's share of such profits - 1.1% I believe - and that the year's exchequer figures will also track an income of these profits but perhaps also an outflow as well as they are given back to Greece.

Basically I am slighlty fascinated by the bureacracy involved and the possible fears that one country may not want to give up these revenues once they are obtained (or at least face hostile public opinion against doing so anyway).

I note it funny that the newspapers keep saying that the ECB and NCBs of Europe are giving up the profit of their holdings of Greek debt but NCBs don't actually hold any Greek bonds at all (although they will be entitled to any profits the ECB makes on their behalf).

Anyway, ramble over - just thinking out loud.



EDIT: Actually, am I incorrect on that point? Can individual eurozone Central Banks hold sovereign debt?

[Jackass]

It seems like a perfectly rational move and facilitated by the fact that they are effectively the security on the risk of the bonds anyway...so if there's a write down in debt and a loss in value to the bonds held by the ECB, it's not in their interest to write down debt, therefore they should be protected from such devaluation.

I don't see the story here...

later12

noodler wrote: »

EDIT: Actually, am I incorrect on that point? Can individual eurozone Central Banks hold sovereign debt?

Yes they can. The CBs' Greek holdings (which comes to about €12bn) will also be exempt from PSI, despite not being related to the SMP purchases. However, the ECB seem to have overcome the (imo) logically sound criticisms of refusing to accept losses on this Greek paper by committing that the profits arising from these indentures will be set aside for assisting Greece in the future.

The threat of a legal challenge has been cited as one of the reasons why the Bundesbank was opposed to the ECB's stance in this case, so I would not be so quick to dismiss Zerohedge's criticisms as pearl-clutching, whatever that means.

Amberman

[QUOTE='[Jackass];

I don't see the story here...[/QUOTE]

The story here is that all Eurozone sovereign bonds have become junior to the ECB....the pari passu nature of sovereign debt markets has been broken.

The implications are vast for all EU citizens and the people who buy their bonds. The financing costs of EU debt loads are bound to rise based on this, which makes the debt dynamics of the countries over which the ECB has sway worse...very fast.

Few people understand the implications...but Bill Gross, the largest bong trader in the world, does.

"Gross: All Euroland bonds held privately now effectively subordinated to #ECB. Do ratings reflect this change?"

The reality of this techtonic shift in finance, law and politics is yet to be fully realised because if the ECB can change contract law retrospectively, then contracts are worth a lot less than people thought.

Amberman

noodler wrote: »

EDIT: Actually, am I incorrect on that point? Can individual eurozone Central Banks hold sovereign debt?

You better pray that they can, because after this self inflicted wound, who else will willingly hold them versus say US, UK and Japanese debt, which still abide by contract law?

This move has huge implications for bond markets and debt servicing costs...ie...YOU!

Amberman

Scofflaw wrote: »

In order to avoid this, the ECB are swapping their currently held Greek bonds for bonds not subject to the collective action clause. How? By asking the Greek government to swap the bonds, which the Greek government has agreed to do.

They're swapping all the bonds...not just the ECB bonds.

The point you seem to be missing is that the ECB is getting different terms than all the other other creditors by virtue of their political influence.

This is a fracture in sovereign debt markets in Europe. It has never happened before. All creditors holding the same class of bonds were equal...until this.

Scofflaw

Amberman wrote: »

They're swapping all the bonds...not just the ECB bonds.

Yes...what would "ECB bonds" have been in the first place?

Amberman wrote: »

The point you seem to be missing is that the ECB is getting different terms than all the other other creditors by virtue of their political influence.

Yes, I can see that the ECB is getting different terms by virtue of their political influence, but It's being done legally, and I don't have a problem in principle with them having preferential status in the markets.

Amberman wrote: »

This is a fracture in sovereign debt markets in Europe. It has never happened before. All creditors holding the same class of bonds were equal...until this.

The ECB is swapping its bonds for a different class of bonds, so I'm not sure what your point is there? That the ECB can do stuff other people can't? Is that news?

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

Yes...what would "ECB bonds" have been in the first place?

Greek bonds owned by the ECB.

Yes, I can see that the ECB is getting different terms by virtue of their political influence, but It's being done legally

That remains to be seen. This is very likely to be challenged in court.

I don't have a problem in principle with them having preferential status in the markets.

No, but the bond markets will. This deal has broken pari passu and created a two tier bond market where previously there was one tier. This has implications that no-one can yet see.

The ECB is swapping its bonds for a different class of bonds, so I'm not sure what your point is there? That the ECB can do stuff other people can't? Is that news?

It is news. This is the first time a major central bank has done this this...ever...that I can see. You might think this will have little impact on sovereign funding going forward...but you'd be dead wrong. We cannot say how big the impact will be though...not to mention that it makes a mockery of contract law...some bond holders now being more equal than others...at their own whim.

One other point, if it is against the ECB's rules to take a haircut on bonds (as you allude to) what in Gods name were they doing buying them in the first place when it was obvious to everyone that haircuts were coming?

Scofflaw

It is news. This is the first time a major central bank has done this this...ever...that I can see. You might think this will have little impact on sovereign funding going forward...but you'd be dead wrong. We cannot say how big the impact will be though...not to mention that it makes a mockery of contract law...some bond holders now being more equal than others...at their own whim.

I would think it's up to anyone to try to get bonds that aren't governed by collective action clauses, but I also think relatively few would be able to get away with it.

The only source I can see so far that thinks this is some kind of unbelievable affront to market principles are zerohedge. No other market sources appear to be rolling around in horror gasping that the end has come...but then, that is ZH's reaction to almost everything.

One other point, if it is against the ECB's rules to take a haircut on bonds (as you allude to) what in Gods name were they doing buying them in the first place when it was obvious to everyone that haircuts were coming?

Perhaps because there was no plan for forced haircuts - which is what this paves the way for - and perhaps because they had the option of avoiding the collective action clause.

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

The only source I can see so far that thinks this is some kind of unbelievable affront to market principles are zerohedge. No other market sources appear to be rolling around in horror gasping that the end has come...but then, that is ZH's reaction to almost everything.

So far being the operative statement...and that post was a cross post from another blogger....Mark J. Grant, Managing Director of Corporate Syndicate and Structured Products for Southwest Securities.

You are suggesting Bill Gross, the head of a $1tr bond fund (the worlds largest) doesn't count as well?

Your opinion of ZH is quite frankly, laughable. They are ranked by time magazine alongside Paul Krugman and Freakonomics as among the top 25 most useful and informative financial blogs today. It is one of (if not the) most widely read blogs by market participants and financial professionals...and for good reason.

They broke the HFT story on Goldman, which resulted in an SEC rules change to stop publishing the datasets they used to ID the fraud (adding to the Goldman "consipracy" theory!), they have had their articles and original research appear in Time, Bloomberg, the NY Times and many more. They are in the top 2100 most visited sites in the world.

Still, if you don't agree with their analysis, its easy to hang the "conspiracy" noose around their neck...and old trick that most thinking people see through very clearly these days.

Perhaps because there was no plan for forced haircuts.

So they were too blind to see what everyone else could see was coming? ZH called the haircuts AGES ago...saying they were unavoidable...but the ECB couldn't see it coming? Seriously? Is that your argument?

Makes you wonder what sort of unintended consequences the ECB have missed in their act of creating a two tier bond market if they couldn't even see that haircuts were in the cards...does it not?

Scofflaw

Amberman wrote: »

So far being the operative statement...and that post was a cross post from another blogger....Mark J. Grant, Managing Director of Corporate Syndicate and Structured Products for Southwest Securities.

You are suggesting Bill Gross, the head of a $1tr bond fund (the worlds largest) doesn't count as well?

Your opinion of ZH is quite frankly, laughable. They are ranked by time magazine alongside Paul Krugman and Freakonomics as among the top 25 most useful and informative financial blogs today. It is one of (if not the) most widely read blogs by market participants and financial professionals...and for good reason.

They broke the HFT story on Goldman, which resulted in an SEC rules change to stop publishing the datasets they used to ID the fraud (adding to the Goldman "consipracy" theory!), they have had their articles and original research appear in Time, Bloomberg, the NY Times and many more. They are in the top 2100 most visited sites in the world.

Still, if you don't agree with their analysis, its easy to hang the "conspiracy" noose around their neck...and old trick that most thinking people see through very clearly these days.

I don't rate them because I'm not a trader, I suspect - traders seem to look at the very short term, and to operate in a world of high drama, with apocalypses and El Dorados around every corner. ZH ups that a notch or two, but a sector in which Max Keiser is a serious figure is not one where I'd consider quantity of readers an indication of quality of thought.

ZH are remembered for their occasional successes, but their far more common predictive failures appear to be forgotten entirely.

Amberman wrote: »

So they were too blind to see what everyone else could see was coming? ZH called the haircuts AGES ago...saying they were unavoidable...but the ECB couldn't see it coming? Seriously? Is that your argument?

Makes you wonder what sort of unintended consequences the ECB have missed in their act of creating a two tier bond market if they couldn't even see that haircuts were in the cards...does it not?

It might, were it not for the fact that you're creating a scenario in which the ECB had to miss things because they didn't do what you think they should have done, and have apparently done something you never thought of them doing. If the ECB were taking a hit on unexpected haircuts, you might have a point - but your point is, in fact, that they're not.

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

I'm not a trader

lol...no chit?

It might, were it not for the fact that

you're creating a scenario...[/QUOTE]

Eh...what scenario am I creating? The ECB bought the bonds and side steppted the haircuts which has created currently unforseen consequences that have drawn the ire of the largest bond investors in the world. Those aren't scenarios...they are facts.

in which the ECB had to miss things

You said they missed them...that they hadnt planned bond haircuts.

because they didn't do what you think they should have done

What all bond holders under pari passu THOUGHT they were signing up to..

and have apparently done something you never thought of them doing.

Yup, the changed the rules of the game after the fact...the financial world is shocked at this...and it will end up in court. You claim this is legal. I content that until this is tested in the courts, you cannot say that. Retrospectively changing contracts because of political influence undermines the very trust the Europe is depending on to roll over HUGE amounts of sovereign debt. You seem to think this won't matter. I can tell you that it matters a lot.

If the ECB were taking a hit on unexpected haircuts, you might have a point - but your point is, in fact, that they're not.

My point is that (according to you) they were the only ones to whom the haircuts were unexpected. Everyone else knew...bond yields clearly signaled that haircuts were coming. The ECB (according to you) can't do basic maths.

A better way to phrase this is that the ECB is unexpectedly changing the pari passu nature of bons markets to sidestepthe utterly predictable haircuts using its political influence to most peoples complete shock...because it's never happened before.

Thats the surprise we're talking about.

Scofflaw

Amberman wrote: »

lol...no chit?

Well now, I didn't realise you had to have a chit to be a trader. I thought you just didn't have to give one.

Amberman wrote: »

Scofflaw wrote:

you're creating a scenario...

Eh...what scenario am I creating? The ECB bought the bonds and side steppted the haircuts which has created currently unforseen consequences that have drawn the ire of the largest bond investors in the world. Those aren't scenarios...they are facts.



You said they missed them...that they hadnt planned bond haircuts.

What all bond holders under pari passu THOUGHT they were signing up to..

Yup, the changed the rules of the game after the fact...the financial world is shocked at this...and it will end up in court. You claim this is legal. I content that until this is tested in the courts, you cannot say that. Retrospectively changing contracts because of political influence undermines the very trust the Europe is depending on to roll over HUGE amounts of sovereign debt. You seem to think this won't matter. I can tell you that it matters a lot.

My point is that (according to you) they were the only ones to whom the haircuts were unexpected. Everyone else knew...bond yields clearly signaled that haircuts were coming. The ECB (according to you) can't do basic maths.

OK, that's all rather shallow rephrasings of what I've suggested. The ECB wouldn't have made this move earlier, since doing so would have made their original market intervention pointless - they were intervening to support Greek bonds, swapping those bonds for non-CAC bonds as they went along would have had the opposite effect.

Doesn't take a lot of thought to figure that out, so I thought I didn't have to say it. But here we are.

Amberman wrote: »

A better way to phrase this is that the ECB is unexpectedly changing the pari passu nature of bons markets to sidestepthe utterly predictable haircuts using its political influence to most peoples complete shock...because it's never happened before.

Thats the surprise we're talking about.

Yes...but you're the one being shocked, not the ECB. The ECB's job is not signal in advance to traders what it's going to do - rather the opposite, much as for any other market player. I'm sure there are other traders who are also shocked, but I suspect the wider world's reaction will be in line with the interest shown in this thread, rather than the rather silly and hysterical thread title. All of this appears to boil down to "ECB upsets traders by doing something they can't", something which I think you'll find most people will simply give a quick thumbs-up to. Traders are sufficiently self-interested not to either need or get anyone else's interest.

As to legality - clearly it's possible for the Greek government to issue non-CAC bonds (after all, they're a sovereign), so clearly it's possible for the ECB to ask for it to be done. I presume, though, that the ability of the ECB to do this will be factored into any future sovereign bond purchases - although I'm not exactly seeing bond prices shooting up through the roof here, even for Greek bonds.

cordially,
Scofflaw

Tora Bora

What has really happened here, is that the ECB, has been taken over by NAMA. Hence, it can now just do what it wants when it wants:cool:

Together, they will turn the corner:o

Amberman

Scofflaw wrote: »

Yes...but you're the one being shocked

I'd LOVE to hear how you arrived at that conclusion.

You see, you think this is about "traders", but its not at all. This is about pension funds, investment funds, sovereign debt holders...and the sovereigns themselves.

What you can't seem to grasp is that in an equal market, where all bond holders are equal before the law (as was previously the case), the risks are spread among ALL the bond holders and the yeild reflected this risk.

Now the ECB has INCREASED the risk...so what do you think happens to the yield?

Will it go up or down?

Do you think this move makes it more likely or less likely that bond investors (who Europe needs to roll over their debt) will flock to already wafer thin sovereign auctions?

More or less?

Put the logic chain together and you get ONE conclusion...

Fewer investors for already thin bond auctions...and those that are interested will be asking for more money as compensation for their inferior legal postition...which the ECB caused.

Now, using your gigantic brain...what does that combination do to debt sustainability?

Better or worse than before?

Sheesh...I didn't think I'd have to spell this out for you, but there you go...you're not a "trader".

Scofflaw

Amberman wrote: »

I'd LOVE to hear how you arrived at that conclusion.

You see, you think this is about "traders", but its not at all. This is about pension funds, investment funds, sovereign debt holders...and the sovereigns themselves.

What you can't seem to grasp is that in an equal market, where all bond holders are equal before the law (as was previously the case), the risks are spread among ALL the bond holders and the yeild reflected this risk.

Now the ECB has INCREASED the risk...so what do you think happens to the yield?

Will it go up or down?

Do you think this move makes it more likely or less likely that bond investors (who Europe needs to roll over their debt) will flock to already wafer thin sovereign auctions?

More or less?

Put the logic chain together and you get ONE conclusion...

Fewer investors for already thin bond auctions...and those that are interested will be asking for more money as compensation for their inferior legal postition...which the ECB caused.

Now, using your gigantic brain...what does that combination do to debt sustainability?

Better or worse than before?

Sheesh...I didn't think I'd have to spell this out for you, but there you go...you're not a "trader".

No, but I can indeed follow that logic. From the post you're apparently responding to:

Scofflaw wrote:

I presume, though, that the ability of the ECB to do this will be factored into any future sovereign bond purchases - although I'm not exactly seeing bond prices shooting up through the roof here, even for Greek bonds.

I won't repeat myself, since apparently it doesn't get read anyway. Let me know when the vast shock hits the sovereign debt market. It may be that only ZH are smart enough to have understood this yet (and Bill Gross, of course).

Do you get the point, by the way, that this may be both unexpected and unprecedented, but is not illegal?

cordially,
Scofflaw

Amberman

You wanted to know when the shock hits the market?

OK...here you go.

Below is the recent divergence between Greek law bonds (for which the pari passu nature of bond holders has been revoked) and the foreign law bonds (mostly UK) which still abide by the widely understood rule of law and aren't subject to ECB subordination on a political whim.




This marked yield divergence isn't present in any other European bond markets yet...Greece is the first, but is highly unlikely to be the last.

Across almost all time periods, the local law bonds are priced at a much higher yeild...reflecting the extra risk these bonds carry of being subordinated.

You wanted to see it, there it is.

Scofflaw

Amberman wrote: »

You wanted to know when the shock hits the market?

OK...here you go.

Below is the recent divergence between Greek law bonds (for which the pari passu nature of bond holders has been revoked) and the foreign law bonds (mostly UK) which still abide by the widely understood rule of law and aren't subject to ECB subordination on a political whim.




This marked yield divergence isn't present in any other European bond markets yet...Greece is the first, but is highly unlikely to be the last.

Across almost all time periods, the local law bonds are priced at a much higher yeild...reflecting the extra risk these bonds carry of being subordinated.

You wanted to see it, there it is.

I'm afraid what you've posted is entirely meaningless. Greek law bonds currently diverge from foreign law bonds...and the previous position was? And what does the same graph show for Austria:



Finally, why not credit ZH for the image, rather than moving it to an image hosting service? Is it because when you compare it to the other graphs shown (Italy, Portugal, Hungary etc) Greece doesn't look in any sense spectacular? Or because you prefer it not to be obvious that until ZH posts something you think is a rebuttal, you don't have one?

Most important point, though, and one which ZH also falls right down on, is that this snapshot completely fails to be a "before and after" comparison on the ECB's move. It therefore cannot in any sense show that any spread between domestic and foreign law bonds is the result of the ECB's move.

As for the rates on Greek bonds in general, absolutely nothing exciting has happened at all, which is presumably why ZH - and you - are reduced to the production of this isolated and therefore pointless snapshot.

cordially,
Scofflaw

Amberman

I wanted to save that image....which is why it was in my Amazon S3 account. No other reason.

If you read the article, you will see that Greece is indeed very different...you can actually see it with your own eyes!

Those divergent spreads aren't anywhere else in Europe in that manner...because no other bonds have been subordinated. Before subordination, Greeces local and foreign bonds would have resembled the other graphs...there was no possible reason for them not too that I can think of, but I would have to dig into the Bloomberg data to measure the variances...and frankly, I already know what I will find.

There will be a standard distribution...a few outliers above, a few below, but mostly in and around the local bond curve...not ALMOST ALL in one direction below the local bond curve.

Want to prove that your beloved ECB's move was benign and make a fool of me? Thats easy...dig through the Bloomberg data prior to subordination and see if you can find a distribution like this one before subordination...and you'll have made your case. I don't have this week.
(I know you won't do it ofcourse!)

For you to call this nothing exciting...well...what can I say. This has implications you (especially you!) can't begin to grasp.

Scofflaw

Amberman wrote: »

I wanted to save that image....which is why it was in my Amazon S3 account. No other reason.

I shall of course take your word for that.

Amberman wrote: »

If you read the article, you will see that Greece is indeed very different...you can actually see it with your own eyes!

Those divergent spreads aren't anywhere else in Europe in that manner...because no other bonds have been subordinated. Before subordination, Greeces local and foreign bonds would have resembled the other graphs...there was no possible reason for them not too that I can think of, but I would have to dig into the Bloomberg data to measure the variances...and frankly, I already know what I will find.

There will be a standard distribution...a few outliers above, a few below, but mostly in and around the local bond curve...not ALMOST ALL in one direction below the local bond curve.

It's nice that you already know what's there without having to look. An impressive ability.

Amberman wrote: »

Want to prove that your beloved ECB's move was benign and make a fool of me?

Not necessary - and my position is a "null hypothesis", not a counter-claim.

Amberman wrote: »

Thats easy...dig through the Bloomberg data prior to subordination and see if you can find a distribution like this one before subordination...and you'll have made your case. I don't have this week.
(I know you won't do it ofcourse!)

For you to call this nothing exciting...well...what can I say. This has implications you (especially you!) can't begin to grasp.

Indeed, I'm not going to "dig through the Bloomberg data prior to subordination and see if you can find a distribution like this one before subordination", because I'm not the one claiming that some kind of seismic shock will be represented in those figures.

That you haven't done it either, though, and dismiss the exercise of doing so, when to prove your point you need to do so, is rather less reasonable, while claiming some kind of victory because I won't do the research needed to back your case is rather obviously silly.

However, since neither of us is going to do the exercise - me because I'm not seeking to prove a negative, and you because you apparently don't require evidence for the positive you assert other than ZH's authority - how about dealing with the rather obviously available figures for Greek bond yields? Are you saying that these exciting and seismic implications wouldn't show up there at all? And if so, why wouldn't they?

cordially,
Scofflaw

Amberman

I'm content to depend on Occams razor...we're seeing what we would have expected to see in the case of an ECB subordination and so the subordination is the most likely reason.

I can't think of any other reason why the divergence between Greek and UK bond law prices would now be so marked.

Apparently, neither can you.

Scofflaw

Amberman wrote: »

I'm content to depend on Occams razor...we're seeing what we would have expected to see in the case of an ECB subordination and so the subordination is the most likely reason.

I can't think of any other reason why the divergence between Greek and UK bond law prices would now be so marked.

Apparently, neither can you.

Argument from personal inability to think of an alternative is hardly impressive, particularly when you have no idea whatsoever whether this is normal for Greek bonds, and apparently no inclination to find out.

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

Argument from personal inability to think of an alternative is hardly impressive, particularly when you have no idea whatsoever whether this is normal for Greek bonds, and apparently no inclination to find out.

cordially,
Scofflaw

Would appreciate it if you didn't tell the people to whom I sold millions of pounds of bonds between 2004 and 2006 that I have no idea about bond markets. :rolleyes:

I know very well what a normal distribution looks like. It has already been described to you...and is clearly evident in some of the images you posted.

Where a market very clearly breaks into two parts, along a legal jurisdiction fracture point, there is something else going on with the markets view of political risk in the event of default. That is what has clearly happened here.

The historical differences in yield between the Greek and foreign law bonds are difficult to get. I had a few minutes yesterday and I couldn't find them...not even in Bloomberg, though if I had a Bloomberg terminal, I'm sure I could get them pretty fast.

It pretty clear to me what's happened. You clearly don't really understand the nature of bond markets very well...so your position is understandable.

Bloombergs data doesn't break the bonds down by jurisdiction...but heres the other data you wanted....the jump in yield since "Subordination day".

Since the 17th Feb (just before ECB subordination day), the yeild on the 2 year has gone from 205% to 229%...a >10% jump in about 2 weeks. Again, that is significantly above normal market noise inside the increasing trend. You can also see the curve steepen after 17th Feb.

http://www.bloomberg.com/quote/GGGB2YR:IND/chart/

Nothing else noteworthy happened in the Greek bond market in that time to set off this large spike that I can think off.

lillybruce

European Central Bank swaps bonds and changes rules to make itself first in line when Greece defaults

Scofflaw

Amberman wrote: »

Would appreciate it if you didn't tell the people to whom I sold millions of pounds of bonds between 2004 and 2006 that I have no idea about bond markets. :rolleyes:

I know very well what a normal distribution looks like. It has already been described to you...and is clearly evident in some of the images you posted.

Where a market very clearly breaks into two parts, along a legal jurisdiction fracture point, there is something else going on with the markets view of political risk in the event of default. That is what has clearly happened here.

The historical differences in yield between the Greek and foreign law bonds are difficult to get. I had a few minutes yesterday and I couldn't find them...not even in Bloomberg, though if I had a Bloomberg terminal, I'm sure I could get them pretty fast.

It pretty clear to me what's happened. You clearly don't really understand the nature of bond markets very well...so your position is understandable.

Bloombergs data doesn't break the bonds down by jurisdiction...but heres the other data you wanted....the jump in yield since "Subordination day".

Since the 17th Feb (just before ECB subordination day), the yeild on the 2 year has gone from 205% to 229%...a >10% jump in about 2 weeks. Again, that is significantly above normal market noise inside the increasing trend. You can also see the curve steepen after 17th Feb.

http://www.bloomberg.com/quote/GGGB2YR:IND/chart/

Nothing else noteworthy happened in the Greek bond market in that time to set off this large spike that I can think off.

The whole thing looks completely on-trend to me, and the spike looks like it's well within the standard noisiness of the system:



I have no particular desire to impugn your ability as a trader, if that's what you claim to be, but you're presenting absolutely no worthwhile evidence for the claim that the ECB's move has sent any kind of shock into Greek or other peripheral bonds, and there's absolutely no need for someone to have bond market experience to know that that's the case.

You cannot prove anything with a single post-event snapshot without a comparison to the prior long-term norm. It doesn't matter whether that's in bond markets or fish populations - the principle is the same in any system.

And you cannot demonstrate fundamental changes in a noisy system (which is what you're claiming) using short-term fluctuations, unless those fluctuations are well outside the normal noise range for the system, which the spike you're referring to rather obviously isn't.

Don't get me wrong - I can completely see why the ECB's decision might have such an effect, and my original comment on your ZH-inspired thread was only that calling this "illegal" or "subverting the rule of law" is silly and inaccurate. If you can show me that the normal state of the Greek bond system before the ECB announcement was for foreign-law and Greek-law bonds to have parity, while afterwards they had settled into a state where the domestic law bonds were treated with greater suspicion, I'd have no difficulty accepting that as likely showing what you're saying to be the case. But without such a comparison, any claim that the current separation is evidence for the claim is nonsense, simply and solely because of the absence of comparison.

Look at it this way: if the markets have been concerned for some time that the Greek government might treat domestic law and foreign law bonds differently - a not unreasonable concern - then we would also expect to see exactly the same distribution in Greek bonds in ZH's snapshot. But we would also expect to see it before the ECB announcement. Do you see why, therefore, you have to have a comparative long-term norm for the bonds before the post-ECB snapshot can be said to show anything useful at all?

cordially,
Scofflaw

Dannyboy83

You said this earlier in the thread.

Amberman wrote: »

Still, if you don't agree with their analysis, its easy to hang the "conspiracy" noose around their neck...and old trick that most thinking people see through very clearly these days.

Then you supplied a graph from Zerohedge.

then you said:

Amberman wrote: »

Want to prove that your beloved ECB's move was benign and make a fool of me? Thats easy...dig through the Bloomberg data prior to subordination and see if you can find a distribution like this one before subordination...and you'll have made your case. I don't have this week.
(I know you won't do it ofcourse!)

then you said:

Amberman wrote: »

I'm content to depend on Occams razor...we're seeing what we would have expected to see in the case of an ECB subordination and so the subordination is the most likely reason.

I can't think of any other reason why the divergence between Greek and UK bond law prices would now be so marked.

Apparently, neither can you.

No offence intended, but can you not see that from my point of view, this looks like run of the mill conspiracy theory stuff?

Your making very certain statements which you don't seem able to prove, but you are relying on others to prove you wrong...

Amberman

Except for the fact that you can see it with your own eyes...its literally right there in the charts. The only reason for a bond market to break along lines of foreign and local bonds is because of precisely the reason that has been stated...the local bonds have been subordinated. Look at the bond markets that havent been subordinated...and tell me if you cant see a difference in the distribution. As I said...its up to you to believe your own eyes...or not.

Amberman

The bottom line is this...I cant think of another reason for the bond market to have broken along the lines of sovereignty under which the bonds will be treated. Now, you might say that fear was always there...but the same pattern doesn't show up in Irelands, Spains, Portugals or Italys bonds where similar fears would seem to be reasonable at this juncture. Can you explain why that is that case...because I can't. But I'm open to suggestions that don't require me to spend hours on end to prove something which seems perfectly logical to me. Also Scofflaw, a 10% increase in yeild in Greek 2 year debt in 2 weeks WAY above normal for that market...to say its just random noise is nonsense.

Scofflaw

Amberman wrote: »

The bottom line is this...I cant think of another reason for the bond market to have broken along the lines of sovereignty under which the bonds will be treated. Now, you might say that fear was always there...but the same pattern doesn't show up in Irelands, Spains, Portugals or Italys bonds where similar fears would seem to be reasonable at this juncture. Can you explain why that is that case...because I can't.

Perhaps because the same fears aren't there. That would make the split on Greek bonds versus the non-split on, say, Italian bonds (haven't seen Irish bonds) an observation requiring explanation.

Amberman wrote: »

But I'm open to suggestions that don't require me to spend hours on end to prove something which seems perfectly logical to me.

I'm you can't take the single post-event snapshot offered by ZH as proof, though, however logical the explanation seems to you. That's really nothing other than an exercise in confirmation bias. As I said, I do agree it's logically a reasonable outcome, and even a reasonable explanation for the bond split, but it's genuinely impossible to claim that the snapshot proves anything of the kind.

Amberman wrote: »

Also Scofflaw, a 10% increase in yeild in Greek 2 year debt in 2 weeks WAY above normal for that market...to say its just random noise is nonsense.

On the contrary. Since the beginning of November Greek 2 year bonds have risen from 87% to 238%, which is a trend rise of 9.44% per week. The rise you're trying to back your case with is at best on-trend, nothing more.

I'll reiterate that there's absolutely nothing wrong with the logic that's being put forward here (hysteria about legality aside), but the "evidence" being offered is entirely unable to support the conclusion reached. It doesn't matter how convinced anyone is of the logic of the case, the observations are completely inadequate to test it.

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

Perhaps because the same fears aren't there. That would make the split on Greek bonds versus the non-split on, say, Italian bonds (haven't seen Irish bonds) an observation requiring explanation.



I'm you can't take the single post-event snapshot offered by ZH as proof, though, however logical the explanation seems to you. That's really nothing other than an exercise in confirmation bias. As I said, I do agree it's logically a reasonable outcome, and even a reasonable explanation for the bond split, but it's genuinely impossible to claim that the snapshot proves anything of the kind.



On the contrary. Since the beginning of November Greek 2 year bonds have risen from 87% to 238%, which is a trend rise of 9.44% per week. The rise you're trying to back your case with is at best on-trend, nothing more.

I'll reiterate that there's absolutely nothing wrong with the logic that's being put forward here (hysteria about legality aside), but the "evidence" being offered is entirely unable to support the conclusion reached. It doesn't matter how convinced anyone is of the logic of the case, the observations are completely inadequate to test it.

cordially,
Scofflaw

You can't just subtract the old bond yeild from the new one and divide by the number of weeks to arrive at your weekly figure. The actual figure you're groping for over a 17 week period from November is under 7%. Using your figure of 9.44%, the yeild grows to over 350% over 17 weeks. The one year is even more hockey stick like after subordination day. http://www.bloomberg.com/quote/GGGB1YR:IND

Scofflaw

Amberman wrote: »

You can't just subtract the old bond yeild from the new one and divide by the number of weeks to arrive at your weekly figure. The actual figure you're groping for over a 17 week period from November is under 7%. Using your figure of 9.44%, the yeild grows to over 350% over 17 weeks. The one year is even more hockey stick like after subordination day. http://www.bloomberg.com/quote/GGGB1YR:IND

That depends on whether you're using % rise over existing rate, or just the rate. I think you're using one, and I'm using the other.

I'd agree that the 1-year bond rates have risen in the right time frame, and one might be able to make the same claim about the 5-year, but I don't think you can say yet that there's a change in trend on the 2-year, and while the 10-year are rising, the timeframe is a couple of weeks later. So the claim that there's a "seismic" shift I wouldn't regard as particularly strong, particularly with the large number of other possible explanations available in Greece's case.

cordially,
Scofflaw