This page has been archived and commenting is disabled.

Buba's Jens Weidmann Voted Against ECB's Decision To Undermine The Sovereign Bond Market

Tyler Durden's picture




 

And just a little bit more on yesterday's story of the day, which a few recent journalist grads took as positive having absolutely no clue about the very basics of a simple restructuring process, and in turn fed it to the 18 year old math Ph.Ds who program FX trading algos that ran away with it in the form of a 150 pip gain, when in reality it was all negative. As the WSJ reports, the only sane person in Europe, did get it: Bundesbank's Jens Weidmann "voted against the proposal, according to a person familiar with the matter." As we expected. Why? Go back to our story on subordination and what it means as the ECB creates an ever more junior class of bond holders. For those who hate long sentences, the WSJ gets it right this time: "The move could rankle investors and turn them away from the peripheral euro zone bond market, blunting the impact of a possible approval of a Greek aid deal and plentiful cash from the ECB." Of course, those who don't react to idiot headlines, and every upticks courtesy of algobots, knew that long ago. But in this stupid market, it takes hours, if not days, for the progressively dumber investor base to comprehend what is going on.

More from the WSJ:

"The trick is surely a short-term win for the ECB, but we fear a long-term loss for Europe," said analysts at Societe Generale in a note to clients Friday. However some market analysts worry that the creation of two different bond classes for Greece will have damaging effects on other euro-zone bond markets. The risks are particularly high for Portugal, seen as the next domino to fall should Greece default, as investors are unlikely to buy debt that could become subordinated whenever a debt restructuring occurs.

 

Some policymakers are also afraid the plan could alienate investors. The head of Germany's Bundesbank, Jens Weidmann, voted against the proposal, according to a person familiar with the matter.

 

"It has always been slightly implicit that the ECB wouldn't be treated like other bondholders. Now it's explicit that they will be super-senior to everyone else," noted Lyn Graham-Taylor, a fixed income strategist at Rabobank International.

 

Richard Kelly, head of European rates and foreign exchange research at TD Securities, also points out that if the ECB is seen buying government bonds at times of stress, yields on these bonds may actually rise.

It gets better:

"If the ECB is in the market buying bonds, with the subordination of investors to the central bank, the actual losses will be distributed over a smaller pool of bonds, giving investors even larger losses."

 

The ECB began buying peripheral bonds in May 2010, at the time of Greece's first rescue package, in an effort to calm Greek, Irish, and Portuguese markets as they came under sustained selling pressure from investors. The program was widened last August to include Italy and Spain.

 

"We've always said that this crisis will end when investors feel confident that they can start buying non-core debt on a fundamental, rather than tactical, basis. This is just being made less likely now, we fear," Societe Generale said.

And so on.

Those who actually care to know about the fundamental dynamics of what is going on, are again invited to read our walkthru: Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default World

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 02/17/2012 - 11:38 | 2169617 Sandmann
Sandmann's picture

The French wanted the ECB so they could control the Bundesbank and stop the D-Mark becoming eUrope's currency as it already was in Central Europe. Instead they have created the kind of catastrophe that the Bundesbank was created to prevent

Fri, 02/17/2012 - 11:44 | 2169651 Ancona
Ancona's picture

It's that pesky "equal and opposite reaction" thing again.

Fri, 02/17/2012 - 11:58 | 2169737 falak pema
falak pema's picture

They? the french? How can they create a catastrophe? The catastrophe was created in USA in 2008 and got amplified as the private bank hole got "socialised" across EU zone after US zone, but not just in one country, continent wide. The sovereigns now strapped with huge lumps of "socialised" banksta debt visible in the banking books all to model, undeclared but well known to governments, then issued the Euro bonding bonanza on individual country basis to ramp up "growth" in atone economies, aftermath of 2008 meltdown. And the GS cabal raped them one by one, starting with the weakest. Debt on debt on both sides of pond, first world meltdown certified. When you play both ends of the heap you are satan, right? right! 

So its all US financial hegemony play, as they have exorbitant privilege (or so they think, plus big stick), now ramped up in mega derivatives pile of CDS like of old; and the Euro dominos pay for this corrupt construct. Now so incestuous you couldn't tell your toe from your index finger, its all dissolved in toxic stuff, like cheese fondu. 

The Maastricht agreement was supposed to prevent such a toxic brew, but we are in nation state fiscal and banking construct in Euro zone. Nobody respected rules. Germany is a culprit in this game via its own banks like all the rest, especially the City nexus of "free enterprise finance".

France is also and is now being swept out to sea like all of the West, debris of financial construct. Don't cry for me  Argentina, I'm part of the plastic crap in the Atlantic ocean, like the PAcific, like...well you name it. 

Why do people cry about pie in the sky when their noses grow like that of Pinocchio, as they won't admit the facts of the matter. 

Fri, 02/17/2012 - 11:39 | 2169620 WaEver
WaEver's picture

Buying government bonds = playing by the government rules

Fri, 02/17/2012 - 11:39 | 2169626 ReallySparky
ReallySparky's picture

Looks like they slapped the hold-outs to the hair cut.

Fri, 02/17/2012 - 11:42 | 2169639 Jefferson
Jefferson's picture

Once the new paranormal sovereign bond market is firmly established we can now expect sovereign bond yields to go up dramatically whenever a central bank announces a new round of QE.

Fri, 02/17/2012 - 11:43 | 2169642 kito
kito's picture

huge shout out to tyler from chris martenson in an interview you can find on chrismartenson.com:

 

Chris Martenson: Yes, absolutely. I am constantly checking the price of gold, oil, stock markets, treasuries, credit default swap spreads. I am looking at corporate debt, junk debt. So I have just got a variety of sites that I use. Some are public; some are through the brokerage houses I use. So I am constantly looking for those. If I see a huge jump in any one of those markets, I am then going to fishing around for information. One of the first places I go is one of the wire feeds through Dow Jones maybe, which comes again through one of my brokerages, because those tend to be very, very current in terms of getting all sorts of rumors and updated news out. Then I check Zero Hedge, an amazing site. It is remarkable how fast that site gets on some of the news. I am really impressed with that.

Adam Taggart: Yeah, Tyler is incredible.

Chris Martenson: Yeah. He is truly amazing. Then I have a number of other blogs I check. But if it is really critical and urgent, I am looking for the fastest information I can get to. What I don’t do is I am not checking the majors – the big newspapers online – I am not going to TV and hoping there is going to be good information there. Those are not sources for me. And then if I have gone through all of that and I decide that there is anything so urgent that I have to quickly write something up and/or send out an alert that is what I will do next. So I am really watching the markets as much as my first early warning indicator.

 

Fri, 02/17/2012 - 11:48 | 2169675 uno
uno's picture

 

also on MaxKeiser's site yesterday: RT’s success (now the most viewed network online with over 650,000,000 views) has thrown American MSM into a serious panic!!!

 

 

Fri, 02/17/2012 - 11:45 | 2169666 StockHut
StockHut's picture

Is the ECB set up like the Fed with a small group of shareholders?  If so, clearly these super wealthy elites are skewing the system to their advantage at the expense of the common folk...not like this hasn't gone on since the beginning of mankind.

Fri, 02/17/2012 - 11:48 | 2169667 Cognitive Dissonance
Cognitive Dissonance's picture

"....which a few recent journalist grads took as positive having absolutely no clue about the very basics of a simple restructuring process...."

Tyler.......before I comment I'll need the TV repeaters (not reporters) to tell me what to think.

Be back in a flash with some iron clad opinions.

Fri, 02/17/2012 - 11:50 | 2169691 russwinter
russwinter's picture

The Peak Orwell market

Fri, 02/17/2012 - 11:58 | 2169727 falak pema
falak pema's picture

dltd

Fri, 02/17/2012 - 12:00 | 2169753 Conman
Conman's picture

Let me get this right, they effectively told bondholders that they can and will change terms at any time for any reason.

Who in thier right minds would invest in any of the PIIGS sovergn bond now? Are we living in Bizarro-earth? Argh!

Fri, 02/17/2012 - 12:08 | 2169787 Village Smithy
Village Smithy's picture

The problem is that this BS algo pumping has pushed the balance between bulls and bears way out of wack. TPTB think it's all good but when the ride down begins no shorts to close means no natural buffer.

Fri, 02/17/2012 - 12:14 | 2169810 Mercury
Mercury's picture

Is the ECB's Greek debt position all Greek law bonds or a mix of Greek law/others...or would that not longer matter after this?

Would the two classes effectively created by this proposed deal be simply: bonds owned by the ECB and bonds owned by everybody else?

Fri, 02/17/2012 - 12:10 | 2169814 LongSoupLine
Fri, 02/17/2012 - 12:16 | 2169863 scatterbrains
scatterbrains's picture

"progressively dumber investor base"  To be  fair isn't that just the PPT and a few robotards chillaxing in mom's basement?

 

Fri, 02/17/2012 - 12:45 | 2170022 lasvegaspersona
lasvegaspersona's picture

I hate long sentences. Give me puchy, to the point. Hemingway NOT Faulkner. Apologize for not have time to be more brief. Crystalize the thought, give it to me undiluted by the writer's initial uncertainties. 200 proof please.

Fri, 02/17/2012 - 14:02 | 2170392 Miles Kendig
Miles Kendig's picture

If ya like punchy, brief, then write it and submit it for publication.

Fri, 02/17/2012 - 13:26 | 2170215 Robslob
Robslob's picture

The definition of winning for the global banksionists:

Massive run from bonds into _ _ _ _

Bond yields rocket as banksionists buy all high yield

Crash stock markets after the all in run to stocks

Sit back and retire off all the interest paid from all

Got gold?

Fri, 02/17/2012 - 13:53 | 2170339 Miles Kendig
Miles Kendig's picture

Another fine example of what happens to a banks customers when THE bank subordinates the marketplace.

Beautiful how ECB held Greek debt just became more senior than most anything in the European market, even Chicago fed notes.  We now know beyond a shadow of a doubt who rides on top between Charles Evans and Evangelos Venizelo.

Fri, 02/17/2012 - 17:40 | 2171497 alexanderstollznow
alexanderstollznow's picture

wow. yet another massive beat up about nothing.

the ECB was a vocal opponent of the PSI from the outset, on the basis of knock on effects to other nations bond markets.  so you would think that in doing this bond swap, they have likely considered that issue in the current context?  in case noone has noticed, greek government bonds are all about to be written down in the PSI deal.  the P stands for PRIVATE.  that means the ECB was never going to be involved. putting it another way, ECB holdings have already had senior status for a long time, so this bond swap changes absolutely nothing.  it is, as it was stated to be, done to avoid techncial difficulties in applying retrospective CACs, to get the PSI deal through.  simple as that.  nothing has changed.  if you think this swap of -what? - EUR40bn of bonds is going to have any effect whatsoever on banks hoovering up spanish and italian bonds, in the light of EUR1 tr of LTRO money, then you have a cavity inside your skull.

Do NOT follow this link or you will be banned from the site!